As
filed with the Securities and Exchange Commission on April 6, 2018
Registration
No. 333-222208
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
Amendment
No. 4 to
FORM
S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
AERKOMM
INC.
(Exact
name of registrant as specified in its charter)
Nevada
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4899
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46-3424568
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(State
or other jurisdiction of
incorporation or organization)
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(Primary
Standard Industrial
Classification Code Number)
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(I.R.S.
Employer
Identification No.)
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923
Incline Way #39
Incline
Village, NV 89451
(877)
742-3094
(Address,
including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Jeffrey
Wun
Chief
Executive Officer
Aerkomm
Inc.
923
Incline Way #39
Incline
Village, NV 89451
(877)
742-3094
(Names,
addresses and telephone numbers of agents for service)
Copy
to:
Louis
A. Bevilacqua, Esq.
BEVILACQUA
PLLC
1050
Connecticut Avenue NW Suite 500
Washington,
DC 20036
(202)
869-0888
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Fang
Liu, Esq.
Mei
& Mark LLP
818
18th Street NW, Suite 410
Washington,
DC 20006-3506
(888)
860-5678
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Approximate
date of commencement of proposed sale to public:
From time to time after this Registration Statement becomes effective.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. ☒
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐ (Do not check if a smaller reporting company)
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Smaller
reporting company ☒
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Emerging
growth company ☒
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION
OF REGISTRATION FEE
Title
of each class of securities to be registered
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Amount
to be
Registered
(1)
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Proposed
maximum
offering
price
per security
(2)
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Proposed
maximum aggregate offering
price
(2)(3)
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Amount
of registration
fee
(4)
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Common
Stock, par value $0.001 per share
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8,117,647
shares
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$
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8.50
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$
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69,000,000
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$
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8,590.50
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Underwriter
Warrants
(5)
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-
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Shares
of Common Stock Underlying Underwriter Warrants
(6)
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487,059
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$
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5,175,000
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$
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644.29
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(1)
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Pursuant
to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”), the shares being registered hereunder
include such indeterminate number of shares of common stock as may be issuable with respect to the shares being registered
hereunder as a result of stock splits, stock dividends or similar transactions.
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(2)
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Estimated
solely for the purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended.
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(3)
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Includes
shares that may be sold pursuant to the exercise of a 45-day option granted to the underwriter to cover over-subscriptions,
if any.
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(4)
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These
fees have been paid in full.
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(5)
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In
accordance with Rule 457(g) under the Securities Act, because the shares of the registrant’s shares of common stock
underlying the Underwriter Warrants are being registered hereby, no separate registration fee is required with respect
to the warrants registered hereby.
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(6)
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We
have agreed to issue, on the closing date of this offering, warrants to our underwriter, exercisable at a rate of one warrant
per share to purchase up to 6.0% of the securities sold by the Registrant in this offering (the “Underwriter Warrants”).
Assuming an offering price of $8.50 per share and full exercise of the underwriter’s over-subscription option,
on the closing date the underwriter would receive Underwriter Warrants to purchase 487,059 shares of our common stock at an
aggregate purchase price of $5,175,000. The exercise price of the Underwriter Warrants is equal to 125% of the price of the
common stock offered hereby. The Underwriter Warrants are exercisable within five years of the effective date of this registration
statement.
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The
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it
is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED APRIL 6, 2018
AERKOMM
iNC.
UP
TO $60,000,000 OF SHARES OF COMMON STOCK
We are offering up to $60,000,000
of shares of common stock on a best efforts basis as described in this prospectus, with a minimum offering amount of approximately
$5,000,000, and a maximum offering amount of $60,000,000. We expect that the price to the public in this offering will
be between $7.50 and $9.50 per share.
Our
common stock is quoted for trading on the OTC Markets Group Inc. OTCQX Best Market under the symbol “AKOM.” On March
28, 2018, the last reported sale price of our common stock on OTCQX was $7.5. After the effective date of the registration statement
relating to this prospectus and following the filing of audited financial statements for our changed fiscal year end ending March
31, 2018 (as discussed in more detail below), we plan to file an application to the have the shares of common stock offered under
this prospectus listed on either the New York Stock Exchange, or NYSE, or the Nasdaq Stock Market, or Nasdaq, under the symbol
“AKOM.”
INVESTING
IN OUR SECURITIES INVOLVES SIGNIFICANT RISKS. YOU SHOULD CAREFULLY READ “RISK FACTORS” BEGINNING ON PAGE 8 AND CONSIDER
RISK FACTORS DESCRIBED HEREIN OR REFERRED TO IN ANY DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE INVESTING IN
OUR SECURITIES.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Boustead Securities, LLC is the underwriter
for this offering. The underwriter is selling our shares in this offering on a best efforts basis and is not required to sell
any specific number or dollar amount of shares offered by this prospectus, but will use its best efforts to sell such shares.
We have granted the underwriter the option for a period of 45 days to purchase up to an additional 15% of the total number of
shares of common stock to be offered by us in this offering at the public offering price, less underwriting discounts and commissions,
solely to cover over-subscriptions, if any. If the underwriter exercises the option in full, the total underwriting discounts
and commissions payable by us will be $4,140,000, and the total proceeds to us, before expenses, will be $64,860,000. We do not
intend to close this offering unless we sell at least $5,000,000 of shares, at the price per share set forth in the table below.
This offering will terminate on July 9, 2018 (which we refer to as the “Initial Offering Termination Date”), which
date may be extended to a date up to and including August 8, 2018 (which we refer to as the “Offering Termination Date”),
unless we sell the maximum amount of shares set forth below before that date or we decide to terminate this offering prior to
that date. In addition, in the event that the maximum amount has been met on or prior to the Offering Termination Date, the underwriter
may exercise the over-subscription option on or prior to the Offering Termination Date to extend the offering for an additional
45 days. All subscription agreements and wire transfers should be sent to Signature Bank New York (“Signature Bank”),
905 Third Avenue, 9th Floor New York, NY 10022. The gross proceeds of this offering will be deposited at Signature Bank in an
escrow account established by us until we have sold a minimum of $5,000,000 of shares. Once we satisfy the minimum offering amount,
the funds will be released to us. In the event we do not sell a minimum of $5,000,000 of shares by the Offering Termination
Date, all funds received will be promptly returned to investors without interest or offset.
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Per Share
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Total
Minimum
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Total Maximum without Over-Subscription Option
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Total Maximum
with Over-Subscription Option
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Public offering price
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$
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8.50
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$
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5,000,000
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$
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60,000,000
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$
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69,000,000
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Underwriting discount
(1)
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$
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0.51
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$
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300,000
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$
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3,600,000
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$
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4,140,000
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Proceeds, before
expenses, to us
(2)
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$
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7.99
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$
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4,700,000
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$
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56,400,000
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$
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64,860,000
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(1)
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The
underwriter will receive compensation in addition to the underwriting discount. See “Underwriting” beginning on
page 76 of this prospectus for a description of compensation payable to the underwriter.
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(2)
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We
estimate the total expenses of this offering, excluding the underwriting commissions, will be approximately $360,672 if the
minimum number of shares being offered are sold, $360,672 if the maximum number of shares being offered are sold without exercise
of the over-subscription option, or $360,672 if the maximum number of shares being offered are sold and the underwriter exercises
the over-subscription option in full. Because this is a best efforts offering, the actual public offering amount,
underwriting commissions and proceeds to us are not presently determinable and may be substantially less than the total maximum
offering set forth above.
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On
the closing date, we will issue the Underwriter Warrants to our underwriter exercisable at a rate of one warrant per share to
purchase up to 6.0% of the securities sold in this offering, at an exercise price equal to 125% of the price at which we sell
our common stock in this offering. We do not intend to list the Underwriter Warrants either on an exchange or an over the counter
quotation system.
Underwriter
The
date of this prospectus is March 29, 2018
TABLE
OF CONTENTS
Please
read this prospectus carefully. It describes our business, financial condition and results of operations. We have prepared this
prospectus so that you will have the information necessary to make an informed investment decision.
You
should rely only on the information contained in this prospectus. We have not, and the underwriter has not, authorized anyone
to provide you with any information other than that contained in this prospectus. We are offering to sell, and seeking offers
to buy, the securities covered hereby only in jurisdictions where offers and sales are permitted. The information in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the securities
covered hereby. Our business, financial condition, results of operations and prospects may have changed since that date. We are
not, and the underwriter are not, making an offer of these securities in any jurisdiction where the offer is not permitted.
For
investors outside the United States: We have not, and the underwriter has not, taken any action that would permit this offering
or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in
the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about,
and observe any restrictions relating to, the offering of the securities covered hereby or the distribution of this prospectus
outside the United States.
This
prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys
and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate
that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or
completeness of such information. We believe that the data obtained from these industry publications and third-party research,
surveys and studies are reliable. We are ultimately responsible for all disclosure included in this prospectus.
We
further note that the representations, warranties and covenants made by us in any agreement that is filed as an exhibit to the
registration statement of which this prospectus is a part were made solely for the benefit of the parties to such agreement, including,
in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation,
warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made.
Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state
of our affairs.
WE
HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS
PROSPECTUS. YOU SHOULD NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR BUY ANY SHARES IN
ANY STATE OR OTHER JURISDICTION IN WHICH IT IS UNLAWFUL. THE INFORMATION IN THIS PROSPECTUS IS CURRENT AS OF THE DATE ON THE COVER.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
PROSPECTUS
SUMMARY
The
following summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary does
not contain all the information you should consider before investing in our common stock. You should carefully read this prospectus
in its entirety before investing in our common stock, including the sections entitled “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and
related notes beginning on page F-1 of this prospectus. Unless otherwise indicated, (i) the terms “Aerkomm,” “we,”
“us” and “our” refer to Aerkomm Inc., a Nevada corporation, and our five wholly-owned subsidiaries Aircom
Pacific, Inc., a California corporation, or Aircom, Aircom Pacific Inc. Limited (Hong Kong), or Aircom HK, Aircom Pacific Ltd.
(Seychelles), or Aircom Seychelles, Aircom Japan, Inc. (Japan), or Aircom Japan, and
Aircom Telecom LLC (Taiwan), or
Aircom
Taiwan
,
and (ii) the term “common stock” refers to the common stock, par value $0.001 per share, of Aerkomm
Inc., a Nevada corporation. The financial information included herein is presented in United States dollars, or US Dollars, the
functional currency of our company.
This
prospectus assumes the over-subscription option of the underwriter has not been exercised, unless otherwise indicated.
Business
Overview
With
advanced technologies and a unique business model, we, as a service provider of in-flight entertainment and connectivity, or IFEC,
solutions, intend to provide airline passengers with a broadband in-flight experience that encompasses a wide range of service
options. Such options include Wi-Fi, cellular, movies, gaming, live TV, and music. We plan to offer these core services, which
we are currently still developing, through both built-in in-flight entertainment systems, such as a seat-back display, as well
as on passengers’ personal devices. We also expect to provide content management services and e-commerce solutions related
to our IFEC solutions.
We plan to partner with airlines and
offer airline passengers free IFEC services. We expect to generate revenue through advertising and in-flight transactions. We
believe that this is an innovative approach that differentiates us from existing market players.
To
complement and facilitate our planned IFEC service offerings, we intend to build satellite ground stations and related data centers
within the geographic regions where we expect to be providing IFEC airline services. Initially, we are planning to build our first
ground station and data center in the Asia region, subject to the availability of sufficient capital and an appropriate ground
location.
Competitive
Strengths
Unique
Business Model
We
believe that our business model sets us apart from our competitors. We combine cutting-edge connectivity technology with a unique
content-driven approach. Traditionally, providers of in-flight connectivity focus primarily on the profit margin derived from
the sale of hardware to airlines and of bandwidth to passengers. Both airlines and passengers must “pay to play,”
which results in low participation and usage rates. We break away from this model and set a new trend with our business model,
under which neither airlines nor passengers need to pay for products or services. Furthermore, our business plan provides our
airline partners with an opportunity to participate in our revenue sharing model. Taken together, this novel approach creates
an incentive for airlines to work with us while driving up passenger usage rates.
Dual-Band
Satellite Technology
Most
in-flight connectivity systems currently rely on the Ku-band satellite signals for communication, though many players in the market
are working to provide higher bandwidth and faster transmitting rates using the Ka-band. However, there are few Ka-enabled satellites,
which limits the coverage area in the Asia-Pacific region. Our dual band system architecture brings our airline partners and their
passengers the benefits of both Ka- and Ku-band satellite technology. The Ka-band increases data throughput, while the Ku-band
offers reliable service outside of the Ka-band coverage area or when Ka-band is not available due to weather or other interference.
Growth
Strategy
We
will strive to be a leading provider of IFEC solutions by pursuing the following growth strategies:
Increase
Number of Connected Aircraft
As
of the date of this report, we have not provided our services on any commercial aircraft. However, we plan to rollout installation
and provide our services in 2018. We plan to leverage our unique ability to cost-effectively equip each commercial aircraft type
in an airline’s fleet to increase the number of equipped aircraft, targeting full-fleet availability of our services for
our current and future airline partners. We plan to pursue this significant global growth opportunity by leveraging our broad
and innovative technology platform and technical expertise. Further, we will offer attractive business models to our prospective
airline partners, giving them the flexibility to determine the connectivity solution that meets the unique demands of their business.
Increase
Passenger Use of Connectivity
We
believe that internet connectivity has become a necessary utility rather than a novelty because most passengers are trying to
remain “connected” while travelling. This trend is manifestly evident from the increasing data usage on mobile phones.
However, the traditional business model has been to charge as much money as possible for high-end in-flight connectivity services
offered to a very small number of people. Such business logic has resulted in the in-flight connectivity option acquiring the
reputation of being “pricey” and “only for business travelers whose employers will pay for it.” With a
focus on catering to only a small number of people in a narrow market niche, our competitors are paying less attention to an innovative
business model that can encourage a wider, broad-based usage of in-flight connectivity services. We believe that certain providers
of existing in-flight connectivity services discourage in-flight usage since they believe such usage will increase their overhead
expenses without generating additional profit. Due to such a business model and the small amounts of revenue generated from currently
available connectivity services, airlines have considered in-flight connectivity as a “service” to passengers provided
at their expense. Under this thinking, in-flight connectivity is a “cost center” from which airlines do not expect
to generate profit.
We
believe that the value of a networking system grows exponentially with its usage and it is a waste of resources to build a networking
system to be utilized only by a narrow niche market. Therefore, our business model encourages usage of our in-flight connectivity
services on a much broader basis. In order to encourage such broader usage, we plan to offer our in-flight connectivity services
to passengers in all travel classes for free, while we generate revenue from add-on services that will tie together passengers’
connectivity and usage. Thus, with our business model, we plan to create connectivity friendly aircraft cabins to provide free
on-board internet connectivity for the passengers, and to generate revenue through the sale of advertising commercials, banner
advertising, in-app purchases, in-game purchases and other related in-flight transactions.
Expand
Satellite Network
We
will continue to expand our global satellite network coverage through the purchase of additional Ku-band and Ka-band capacity,
and seek to install aircraft with our satellite solutions, while continuing to invest in research and development of satellite
antenna and modem technologies. We are actively working with satellite providers in order to accommodate airlines’ global
routes and growing fleets. We are monitoring the satellite industry for growth in coverage, with recent attention on China Satellite
Communications Co. Ltd.’s, or China Satcom, plan to launch high-capacity Ka-band and Ka High Throughput Satellites, or HTS,
multisport-beam satellites over the Asia-Pacific region.
Expand
Satellite-Based Services to Other Markets
We
anticipate broadening our satellite-based services to high-speed railways, maritime and cruise lines, 4G/5G backhauling, and converged
triple-play services in remote communities, with the potential to expand internationally into new markets. Future business prospects
will be evaluated on a case by case basis by weighing the projected revenue from advertising fees and e-commerce revenue shares
against the operating and capital expenditures of satellite coverage, bandwidth and operations. Our existing business model could
be applied to high-speed railways and cruise lines, both of which have a sufficient passenger base for the service to be viable.
High-speed railways in China sit under existing, available Ka satellite coverage areas that are not served by 4G/LTE mobile networks,
providing us with a unique opportunity to deliver our services. High-speed railways in other regions of Asia present similar opportunities.
Remote communities in Asia lack a telecom infrastructure, partly due to geographical limitations such as the many islands of the
Philippines or Indonesia. Satellite-based communications and mesh network technology make triple play services possible, delivering
live TV broadcasting, videos, and telecom services to these regions.
Organization
We
were incorporated in the State of Nevada on August 14, 2013 under the name Maple Tree Kids, Inc. On January 10, 2017, we changed
our name to Aerkomm Inc. and on February 13, 2017, we consummated a reverse acquisition with Aircom Pacific, Inc., our wholly-owned
subsidiary through which we conduct substantially all of our business transactions. Aerkomm’s principal executive offices
are located at 923 Incline Way #39, Incline Village, NV 89451 and Aircom’s principal executive offices are located at 44043
Fremont Blvd., Fremont, CA 94538. Our telephone number is (877) 742-3094. We maintain a website at www.aerkomm.com. The information
on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this
prospectus.
Risks
Related to Our Business
Our
business is subject to numerous risks, which are highlighted in the section entitled “Risk Factors” immediately following
this prospectus summary. Some of these risks include:
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we
have a history of operating losses (after excluding non-recurring revenues) and we may not be able to reach or maintain profitability;
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difficulties
in entering into and maintaining long-term business arrangements with airline partners, which agreements depends on numerous
factors including the real or perceived availability, quality and price of our services and product offerings as compared
to those offered by our competitors;
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difficulties
in having airline partners and ultimately customers adopt our products and services;
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difficulties
in implementing our technology and upgrades on a timely basis;
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difficulties
in the execution of our expansion plans, including modification to our network to accommodate satellite technology, development
and implementation of new satellite-based technologies, the availability of satellite capacity, costs of satellite capacity
to which we may have to commit well in advance, and compliance with regulations;
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difficulties
in managing a rapidly growing company;
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the
number of aircraft in service in our markets, including consolidation of the airline industry or changes in fleet size by
one or more of our commercial airline partners;
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the
economic environment and other trends that affect both business and leisure travel;
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the
continued demand for connectivity and proliferation of Wi-Fi enabled devices, including smartphones, tablets and laptops;
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our
ability to obtain required telecommunications, aviation and other licenses and approvals necessary for our operations;
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changes
in laws, regulations and interpretations affecting telecommunications services and aviation, including, in particular, changes
that impact the design of our equipment and our ability to obtain required certifications for our equipment;
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our
industry is subject to intense competition and rapid technological change, which may result in products or new solutions that
are superior to our products under development or other future products we may bring to market from time to time and if we
are unable to anticipate or keep pace with changes in the marketplace and the direction of technological innovation and customer
demands, our products may become less useful or obsolete and our operating results will suffer;
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we
may not be able to operate and grow our business effectively if we lose the services of any of our key personnel or are unable
to attract qualified personnel in the future; and
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our
growth strategy will require significant additional financial resources, which may not be available to us on acceptable terms.
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For
further discussion of these and other risks you should consider before making an investment in our common stock, see the section
titled “Risk Factors” immediately following this prospectus summary.
Emerging
Growth Company
We
qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As
a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an
emerging growth company, we will not be required to:
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have
an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
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comply
with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation
or a supplement to the auditor’s report providing additional information about the audit and the financial statements
(i.e., an auditor discussion and analysis);
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submit
certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;”
and
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disclose
certain executive compensation related items such as the correlation between executive compensation and performance and comparisons
of the CEO’s compensation to median employee compensation.
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In
addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
In
other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial
statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We
will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first
fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated
filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our shares of common stock
that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal
quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year
period.
Conventions
Used in this Prospectus
Throughout
this prospectus we use certain terms repeatedly. To assist you in reading and understanding the disclosure contained in this prospectus,
please note the following frequently used terms, which, except as otherwise specified, have the meanings set forth below:
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“we,”
“us,” “our,” or “our company,” are to the combined business of Aerkomm Inc., a Nevada
corporation, and its consolidated subsidiaries;
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|
●
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“Aircom”
are to Aircom Pacific, Inc., a California corporation and wholly-owned subsidiary of our company;
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|
●
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“Aircom
Seychelles” are to Aircom Pacific Ltd., a Republic of Seychelles company and wholly-owned subsidiary of Aircom;
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●
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“Aircom
HK” are to Aircom Pacific Inc. Limited, a Hong Kong company and wholly-owned subsidiary of Aircom;
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●
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“Aircom
Japan” are to Aircom Japan, Inc., a Japanese company and wholly-owned subsidiary of Aircom;
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●
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“Aircom
Taiwan” are to Aircom Telecom LLC, a Taiwanese company and wholly-owned subsidiary of Aircom;
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●
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“our
shareholders” refers to holders of our shares of common stock;
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●
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“offering”
refers to the offering contemplated by this prospectus;
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●
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“SEC”
refers to the U.S. Securities and Exchange Commission;
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●
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“Securities
Act” refers to the Securities Act of 1933, as amended; and
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●
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“Exchange
Act” refers to the Securities Exchange Act of 1934, as amended.
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On
January 10, 2017, we completed a 1-for-10 reverse split of our issued and outstanding common stock. All share and per share information
in this report has been adjusted to give retroactive effect to such reverse split.
The
Offering
Securities being offered:
|
|
A
minimum of 588,235 shares of our common stock and up to a maximum of 7,058,824 shares of common stock (assuming an offering
price of $8.50 per share), or a minimum of approximately $5,000,000 and a maximum of $60,000,000, plus up to an additional
1,058,823 shares if the $9,000,000 over-subscription option is exercised in full.
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|
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Best Efforts Offering
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|
The underwriter is selling the shares offered in this prospectus on a “best efforts” basis and is not required to sell any specific number or dollar amount of the shares offered by this prospectus, but will use its best efforts to sell such shares. We will not close this offering unless we sell a minimum of $5,000,000 of shares.
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|
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Securities issued and outstanding before this offering:
|
|
41,460,097 shares of common stock as of March 28, 2018.
(1)
|
|
|
|
Securities issued and outstanding after this offering:
(2)
|
|
42,048,332 shares of our common stock if the minimum number of shares being offered is sold, 48,518,921 shares of our common stock if the maximum number of shares being offered are sold, 49,577,744 shares of our common stock if the underwriter exercises the over-subscription option in full.
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|
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Underwriter’s over-subscription option:
|
|
The underwriting agreement with our underwriter provides that we will grant to the underwriter an option, exercisable within 45 days after the closing of this offering, to purchase up to an additional 15% of the total number of shares of common stock to be offered by us pursuant to this offering, solely for the purpose of covering over-subscriptions, if any.
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|
|
|
Use of proceeds:
|
|
We estimate our net proceeds
from this offering will be approximately $4,339,328, if the minimum number of shares being offered are sold, approximately
$56,039,328, if the maximum number of shares being offered are sold, or approximately $64,499,328 if the underwriter exercises
their over-subscription option in full, based upon an assumed public offering price of $8.50 per share, the midpoint of
the price range set forth on the cover of this prospectus, and after deducting the underwriting discounts and commissions
and estimating offering expenses payable by us.
We expect to use the net proceeds
of this offering for general corporate purposes, including working capital, product development, marketing activities,
expending our internal organization and other capital expenditures including the purchase of land for the building of
our first ground station and data center in the Asia region. For a more detailed discussion, see “Use of Proceeds”
below.
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|
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|
Escrow account
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|
All subscription agreements and wire transfers
should be sent to Signature Bank New York, 905 Third Avenue, 9th Floor New York, NY 10022. The gross proceeds of this offering
will be deposited at Signature Bank in an escrow account established by us. The funds will be held in such escrow account until
$5,000,000 of gross proceeds from the offering has been received, at which time the funds will be released to us. Any funds received
in excess of $5,000,000 and up to $60,000,000 (or $69,000,000 if the underwriter exercises the over-subscription option
in full) will immediately be available to us, after deducting the applicable underwriting commissions. If the minimum amount of
$5,000,000 has not been received by July 9, 2018 (which we refer to as the “Initial Offering Termination Date”), which
date may be extended to a date up to and including August 8, 2018 (which we refer to as the “Offering Termination Date”),
all funds will be returned to purchasers in this offering on the next business day after the offering’s termination, without
charge, deduction or interest. In the event that the maximum amount has been met on or prior to the Offering Termination Date,
the underwriter may exercise the over-subscription option on or prior to the Offering Termination Date to extend the offering for
an additional 45 days.
Prior to the Initial Offering Termination
Date, in no event will funds be returned to you, unless we elect, at our option, to terminate the offering. In the event we decide
to extend the offering period beyond the Initial Offering Termination Date, we will seek reconfirmations from investors who have
deposited funds into the escrow account and all funds deposited by investors who do not reconfirm will be promptly returned without
interest or offset. Except as described in the preceding sentence, you will only be entitled to receive a refund of your subscription
if we do not raise a minimum of $5,000,000 by the Offering Termination Date, or if we terminate the offering before such
date.
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Current symbol:
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|
OTCQX Best Market: AKOM.
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Listing and proposed NYSE or Nasdaq symbol:
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|
After the effective
date of the registration statement relating to this prospectus and following the filing of audited financial statements for
our changed fiscal year end ending March 31, 2018 (discussed below), we plan to file an application to have the shares of
common stock offered hereby listed on either the NYSE or the Nasdaq under the symbol “AKOM.” The Company
expects to meet the NYSE and Nasdaq initial listing standards, including the market value of our publicly held shares, the
market value of our listed securities, the number of our publicly held shares, the number of round lot shareholders, the number
of market makers and the bid or closing price of our common stock, upon a successful completion of this offering, although
no assurance can be given that we will successfully complete this offering or meet those standards and that our listing application
to either the NYSE or the Nasdaq will be approved. The market value of our publicly held shares (i.e., shares held
by non-affiliated persons) already exceeds the $15 million and 1 million share minimum thresholds of both the NYSE and the
Nasdaq, and the market value of all of our listed securities currently meets both the NYSE and NASDAQ minimums of $50 million. We
cannot be sure that we will be able to meet the minimum number of round lot shareholders required by the NYSE (400) or the
Nasdaq (300) if we raise only the minimum amount in this offering., and there can be no assurance that we will be able to
meet these minimum shareholder requirements even if we complete this offering having sold the maximum amount. We currently
meet the number of market makers requirements of both exchanges and we expect that we will meet the bid or closing price of
our common stock for both exchanges based on the expected range of pricing of our common stock in this offering. To meet the
exchanges’ financial statement seasoning requirements, on March 18, 2018, our board of directors voted to change our
fiscal year to March 31 and prepare audited financial statements for the fiscal quarter ended March 31, 2018, which, when
combined with our audited financial statements for the fiscal year ended December 31, 2017, will give us the exchange required
audited financial statements for a full fiscal year following the completion of our reverse acquisition and the filing of
our Form 10 information with the SEC on February 13, 2017. Because we will only be filing our exchange listing
application following the filing with the SEC of our audited financial statements for the quarter ended March 31, 2018, you
may experience a delay between the closing of your purchase of our common stock in this offering and the listing of those
shares on an exchange. Furthermore, if we do not meet the exchange listing standards, our exchange application
will not be approved, and our common stock will not be able to trade on an exchange, although our common stock will continue
to be quoted for trading on the OTCQX.
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Dividend and distribution policy:
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|
We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future, if at all. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.
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Lock-up:
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We and our directors, officers and any other 5% or greater holder of outstanding shares of common stock (and all holders of securities exercisable for or convertible into shares of common stock) have agreed with the underwriter not to offer for sale, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any of our securities, including the issuance of shares of common stock upon currently outstanding option for a period of six (6) months after the date of this prospectus, without the prior written consent of the underwriter. See “Underwriting.”
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Risk factors:
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|
Investing in our securities is highly speculative and involves a high degree of risk. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 8 before deciding to invest in our securities.
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(1)
|
The
number of shares of our common stock outstanding after this offering is based on 41,460,097 shares of our common stock outstanding
as of March 28, 2018, and excludes:
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|
●
|
4,054,011
shares of our common stock reserved for future option grants pursuant to our 2017 Equity Incentive Plan;
|
|
|
|
|
●
|
1,265,000
shares of our common stock have been approved by our board of directors for issuance upon the exercise of options granted
to our officers, directors, employees and service providers;
|
|
|
|
|
●
|
4,661,308
shares of our common stock issuable upon the exercise of options under our 2017 Equity Incentive Plan to be issued to holders
of Aircom Pacific, Inc. options (“Aircom 2014 Plan”) assumed by us as a result of the closing of the reverse acquisition
with Aircom Pacific, Inc.; and
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|
|
|
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●
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Up
to 487,059 shares of common stock underlying the Underwriter Warrants.
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|
(2)
|
The
total number of shares of common stock outstanding after this offering is based on 41,460,097 shares outstanding as of March
28, 2018 and an assumed public offering price of $8.50 per share (the midpoint of the price range set forth on the cover of
this prospectus).
|
Summary
Consolidated Financial Data
The
following tables summarize our consolidated financial data. You should read this summary consolidated financial data together
with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and our consolidated financial statements and related notes that are included elsewhere in this prospectus.
The
consolidated statement of operations data for the years ended December 31, 2017, 2016 and 2015 are derived from our audited consolidated
financial statements that are included elsewhere in this prospectus. Our historical results are not necessarily indicative of
the results that may be expected in the future, and our interim results are not necessarily indicative of the results to be expected
for the full year or any other period.
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|
Years Ended December 31,
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|
|
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2017
|
|
|
2016
|
|
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2015
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,128,900
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
1,337,905
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
4,790,995
|
|
Operating expenses
|
|
|
7,147,597
|
|
|
|
3,970,105
|
|
|
|
1,235,796
|
|
Income (loss) from continuing operations
|
|
|
(7,147,597
|
)
|
|
|
(3,176,464
|
)
|
|
|
2,670,414
|
|
Income (loss) from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net income (loss)
|
|
$
|
(7,132,464
|
)
|
|
$
|
(3,176,464
|
)
|
|
$
|
2,670,414
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.1748
|
)
|
|
$
|
(0.0808
|
)
|
|
$
|
0.0841
|
|
Diluted
|
|
$
|
(0.1748
|
)
|
|
$
|
(0.0808
|
)
|
|
$
|
0.0759
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
40,821,495
|
|
|
|
39,335,796
|
|
|
|
31,752,318
|
|
Diluted
|
|
|
40,821,495
|
|
|
|
39,335,796
|
|
|
|
35,190,236
|
|
|
|
December 31, 2017
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
Current assets
|
|
$
|
1,239,544
|
|
Total assets
|
|
$
|
10,265,976
|
|
Total liabilities
|
|
$
|
3,811,913
|
|
Total stockholders’ equity
|
|
$
|
6,454,063
|
|
RISK
FACTORS
Investment
in our common stock involves a high degree of risk. You should carefully consider each of the following risks, together with all
other information set forth in this prospectus, including the financial statements and the related notes, before making a decision
to buy our common stock. If any of the following risks actually occurs, our business could be harmed. In that case, the trading
price of our common stock could decline, and you may lose all or part of your investment.
Risks
Related to Our Business
Our
company is in the development stage and has a limited operating history, which may make it difficult to evaluate our current business
and predict our future performance.
Our
company and our core business are in the development stage and faces all of the risks and uncertainties associated with a new
and unproven business. We plan to launch our services in Asia in 2018, initially in China or Southeast Asia. The limited operating
history of our business may make it difficult to accurately evaluate the business and predict its future performance. Any assessments
of our current business and predictions that we or you make about our future success or viability may not be as accurate as they
could be if we had a longer operating history. We have encountered and will continue to encounter risks and difficulties frequently
experienced by growing companies in rapidly changing industries, and the size and nature of our market opportunity will change
as we scale our business and increase deployment of our service. If we do not address any of the foregoing risks successfully,
our business will be harmed.
Excluding
non-recurring revenues in 2015 from affiliates, we have incurred operating losses in every quarter since we launched our business
and may continue to incur quarterly operating losses, which could negatively affect the value of our company.
Excluding
non-recurring revenues we earned from affiliates in 2015, we have incurred operating losses since our inception in 2014, and we
may not be able to generate sufficient revenue in the future to generate operating income. We also expect our costs to increase
materially in future periods, which could negatively affect our future operating results. We expect to continue to expend substantial
financial and other resources on the continued launch and future expansion of our business. The amount and timing of these costs
are subject to numerous variables and such initiatives may require additional funding. In addition, we may incur significant costs
in connection with our pursuit of next generation air to ground technology or other new technologies. With respect to our expansion,
such variables may include costs related to sales and marketing activities and administrative support functions, equipment subsidies
to airlines and additional legal and regulatory expenses associated with operating in the international commercial aviation market.
In addition, we expect to incur additional general and administrative expenses, including legal and accounting expenses, related
to being a public company. These investments may not result in revenue or growth in our business. If we fail to grow our overall
business and generate revenue, our financial condition and results of operations would be adversely affected.
There
is substantial uncertainty that we will continue operations as a going concern in which case you could lose your entire investment.
Our
future existence remains uncertain. We have generated no recurring revenues to date, our only non-recurring revenues were from
sales to our affiliates in 2015 and we have suffered losses from our operations after excluding those non-recurring revenues.
We also have outstanding accrued liabilities. Although we expect to raise capital from the sale of equity or debt securities,
there is no assurance that we will be able to do so. This means that there is substantial doubt that we can continue as a going
concern for the next twelve months unless we obtain additional capital to pay our bills and debts and execute our plan of operations.
We
expect to rely on a few key customers for all of our initial revenue.
Our
initial business will be substantially dependent on our relationship with a few key airline customers. There can be no assurance
that we will be able to maintain our relationship with these airlines. If we are unable to maintain and renew our relationship
with these airlines, or if our arrangement is modified so that the economic terms become less favorable to us, then our business
would be materially adversely affected.
Our
agreement with Hong Kong Airlines will have no legal effect until we receive approval of our VSTC by the HKCAD.
Until
such time as we have received all required approvals from the Hong Kong Civil Aviation Department, or HKCAD, the agreement with
Hong Kong Airlines only expresses the desires and understandings between us and Hong Kong Airlines and will not create any legal
rights, liabilities or responsibilities whatsoever and will not be legally binding on us or Hong Kong Airlines. There can be no
assurance as to when we will receive the required HKCAD approvals or if we will receive such approvals at all. If we do not receive
the HKCAD approval of our Validation of Supplemental Type Certificate, or VSTC, our agreement with Hong Kong airlines will have
no economic impact. Such an outcome would have a substantial adverse effect on our revenue prospect.
If
the transactions contemplated by several memorandums of understanding (MOU) and our letter of intent (LOI) do not proceed, our
results of operations and financial condition could be materially adversely affected.
On
January 19, 2016, January 29, 2016, June 16, 2016, September 26, 2017, October 28, 2017 and March 7, 2018, we entered into the
Yahoo MOU, the LeTV MOU, the India MOU, the Malta MOU, the LOI and the Airbus MOU, respectively. These MOUs and LOI are nonbinding
and as a result, they only express the desires and understandings between the parties and do not create any legally binding rights,
obligations or contracts except for certain customary provisions such as exclusivity, costs and expenses, confidentiality and
governing law. For more information related to these MOUs, please refer to the section “MOUs and LOI with Our Business Partners.”
Any binding obligation to proceed with the transactions contemplated by the MOUs and the LOI would need to be included in a definitive
agreement that is subject to negotiations of the parties, approvals by the board of directors of respective parties and in certain
instances, approvals from regulatory authorities. The Yahoo MOU and LeTV MOU expired in January 2018 and we are in the process
of negotiating to extend those two MOUs. There can be no assurance that we will be able to extend the expired MOUs or enter into
such definitive agreements or receive the required governmental approvals. If for whatever reason the transactions contemplated
by the MOUs and the LOI do not proceed, our results of operations and financial condition could be materially adversely affected.
One
of our suppliers has failed to deliver a key component of our IFEC system and we have terminated our satellite services agreement
with another. We cannot be sure that we will be able to find alternative source for this component or for the required satellite
services and, as a result, we may not be able to implement our business plan.
The
implementation of the Hong Kong Airlines project is conditioned upon VSTC approval from the HKCAD. We and our equipment supplier
have submitted the VSTC application to HKCAD but the application process is presently on hold due to the supplier’s failure
to deliver a key component of the IFEC system. We do not expect this supplier to be able to delivery this key component and we
are actively seeking alternative options to implement the Hong Kong Airline project, including developing necessary equipment
or components thereof with other strategic partners. Because we cannot be sure when and if we will be able to obtain the IFEC
component for the VSTC approval, we cannot be sure when we will receive approval for the Hong Kong Airlines project, if at all.
If we are not able to source this necessary IFEC component, our current agreement with Hong Kong Airlines will not become executable
and we will not be able to implement our business plan as currently envisioned.
Additionally,
our satellite services agreement with Asia Satellite Telecommunications Company Limited, or AsiaSat, was recently terminated.
If we are not able to find a replacement satellite services provider, we will not be able to deliver our service offerings to
Hong Kong Airlines even once we receive the VSTC approval from HKCAD. Such a failure would have a negative impact on our business
prospects.
If
we cannot timely deliver our first order of onboard equipment to Klingon Aerospace Inc., our reseller and development partner,
we may lose our agreement with Klingon.
Because
of the delay in our receiving approval of the VSTC from the HKCAD, we have not been able to deliver to Klingon a ready for sale,
certified onboard system equipment package. Klingon has the right to terminate our agreement with them upon 60 days’ prior
notice, subject to a 60-day cure period, if we fail to timely deliver the certified product. If Klingon terminates its agreement
with us, we may be responsible for refunding to Klingon the milestone payments that we have received.
We
may not be able to grow our business with our current potential airline partner or successfully negotiate agreements with airlines
to which we do not currently provide our service.
Currently,
our only potential airline partner is Hong Kong Airlines, although we have not yet begun to sell our products and services to
Hong Kong Airlines under our agreement with them. We are currently in negotiations or discussions with certain other airline partners
to provide our IFEC services on additional aircraft in their fleets. We have no assurance that these efforts will be successful.
Negotiations with prospective airline partners require substantial time, effort and resources. The time required to reach a final
agreement with an airline is unpredictable and may lead to variances in our operating results from quarter to quarter. We may
ultimately fail in our negotiations and any such failure could harm our results of operations due to, among other things, a diversion
of our focus and resources, actual costs and opportunity costs of pursuing these opportunities. In addition, the terms of any
future agreements could be materially different and less favorable to us than the terms included in our existing agreement with
Hong Kong Airlines. To the extent that any negotiations with current or future potential airline partners are unsuccessful, or
any new agreements contain terms that are less favorable to us, our growth prospects could be materially and adversely affected.
We
will likely need additional financing to execute our business plan or new initiatives, which we may not be able to secure on acceptable
terms, or at all.
We
will require additional financing in the near and long term to fully execute our business plan. Our success may depend on our
ability to raise such additional financing on reasonable terms and on a timely basis. Conditions in the economy and the financial
markets may make it more difficult for us to obtain necessary additional capital or financing on acceptable terms, or at all.
If we cannot secure sufficient additional financing, we may be forced to forego strategic opportunities or delay, scale back or
eliminate additional service deployment, operations and investments or employ internal cost savings measures.
We
are dependent on airline partners to be able to access our customers. We expect that future payments by these customers for our
services to be provided to them will account for most, if not all, of our initial revenues.
Under
our existing contract with Hong Kong Airlines, once our VSTC is approved by the HKCAD, we will provide our equipment for installation
on, and provide our services to passengers on, a portion of the aircraft operated by this airline. We expect to enter into similar
contracts with other airlines in the future but there is no assurance that we will be successful in signing up additional airlines
partners. We expect that revenue from passengers using our service while flying on aircraft operated by our airline partners will
account for the majority of our projected initial revenue once we begin our services. As of the date of this report, we do not
yet have any revenue from equipment sales and installation. Our growth will be dependent on our ability to have our equipment
installed on the aircraft of airline partners and increased use of our service on installed aircraft. Any delays in installations
under these contracts may negatively affect our ability to grow our user base and revenue.
A
failure to maintain airline satisfaction with our equipment or our service could have a material adverse effect on our revenue
and results of operations.
Our
relationships with our current and future potential airline partners are critical to the growth and ongoing success of our business.
If airline partners are not satisfied with our equipment or our service for any reason, including passenger dissatisfaction with
the service as a result of capacity constraints, they may reduce efforts to co-market our service to their passengers, which could
result in lower passenger usage and reduced revenue, which could in turn give airline partners the right to terminate their contracts
with us. In addition, airline dissatisfaction with us for any reason, including delays in obtaining certification for or installing
our equipment, could negatively affect our ability to expand our service to additional airline partners or aircraft or lead to
claims for damages, which may be material, or termination rights under our existing or potential contracts with airline partners.
We
are experiencing network capacity constraints in our operation region and expect capacity demands to increase, and we may in the
future experience capacity constraints internationally. If we are unable to successfully implement planned or future technology
enhancements to increase our network capacity, or our airline partners do not agree to such enhancements, our ability to maintain
sufficient network capacity and our business could be materially and adversely affected.
All
providers of wireless connectivity services, including all providers of in-flight connectivity services, face certain limits on
their ability to provide connectivity service, including escalating capacity constraints due to expanding consumption of wireless
services and the increasing prevalence of higher bandwidth uses such as file downloads and streaming media content. The success
of our business depends on our ability to provide adequate bandwidth to meet customer demands while in-flight.
Competition
from a number of companies, as well as other market forces, could result in price reduction, reduced revenue and loss of market
share and could harm our results of operations.
We
face strong competition from satellite-based providers of broadband services that include in-flight internet and live television
services. Competition from such providers has had in the past and could have in the future an adverse effect on our ability to
maintain or gain market share. Most of our competitors are larger, more diversified corporations and have greater financial, marketing,
production, and research and development resources. As a result, they may be better able to withstand the effects of periodic
economic downturns or may offer a broader product line to customers. In addition, to the extent that competing in-flight connectivity
services offered by commercial airlines that are not our airline partners are available on more aircraft or offer improved quality
or reliability as compared to our service, our business and results of operations could be adversely affected. Competition could
increase our sales and marketing expenses and related customer acquisition costs. We may not have the financial resources, technical
expertise or marketing and support capabilities to continue to compete successfully. A failure to effectively respond to established
and new competitors could have a material adverse impact on our business and results of operations.
We
may be unsuccessful in generating revenue from live television and other in-flight entertainment services.
We
are currently developing a host of service offerings to deliver to our future commercial airline customers. We plan to offer live
television and other service to our customers and no assurance can be given that we will ultimately be able to launch any channels
or provide any service. Additionally, we plan to generate a revenue stream from our video on demand and other in-flight entertainment
services. If we are unable to generate revenue from live television or if other entertainment services do not ultimately develop,
our growth and financial prospects would be materially adversely impacted.
We
are working to acquire a sufficient number of on-demand movies and television shows and a variety of other content on our system.
The future growth prospects for our business depend, in part, on revenue from advertising fees and e-commerce revenue share arrangements
on passenger purchases of goods and services, including video and media services. Our ability to generate revenue from these service
offerings depends on:
|
●
|
growth
of commercial airline customer base;
|
|
●
|
the
attractiveness of our customer base to media partners;
|
|
●
|
rolling
out live television and media on demand on more aircraft and with additional airline customers and increasing passenger adoption
both in the U.S. and abroad;
|
|
●
|
establishing
and maintaining beneficial contractual relationships with media partners whose content, products and services are attractive
to airline passengers; and
|
|
●
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our
ability to customize and improve our service offerings in response to trends and customer interests.
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If
we are unsuccessful in generating revenue from our service offerings, that failure could have a material adverse effect on our
growth prospects.
We
face limitations on our ability to grow our operations which could harm our operating results and financial condition.
We
have not yet begun selling our products or services to our future customers. Our addressable market and our ability to expand
in our operating region is inherently limited by various factors, including limitations on the number of commercial airlines with
which we could partner, the number of planes in which our equipment can be installed, the passenger capacity within each plane
and the ability of our network infrastructure or bandwidth to accommodate increasing capacity demands. Future expansion is also
limited by our ability to develop new technologies on a timely and cost-effective basis, as well as our ability to mitigate network
capacity constraints through, among other things, the expansion of our satellite coverage area. Our future growth may slow, or
once we begin selling products and services to our customers, we may stop growing altogether, to the extent that we have exhausted
all potential airline partners and as we approach installation on full fleets and maximum penetration rates on all flights. In
order to grow our future revenue, we will have to rely on customer and airline partner adoption of currently available and new
or developing services and additional offerings. We cannot assure you that we will be able to obtain a market presence or establish
new markets and, if we fail to do so, our business and results of operations could be materially adversely affected.
We
may be unsuccessful in expanding our operations internationally.
Our
business will initially be international business. Our ability to grow our international business involves various risks, including
the need to invest significant resources in unfamiliar markets and the possibility that we may not realize a return on our investments
in the near future or at all. In addition, we have incurred and expect to continue to incur significant expenses before we generate
any material revenue in these new markets. Under our agreements with providers of satellite capacity, we are obligated to purchase
bandwidth for specified periods in advance. If we are unable to generate sufficient passenger demand or airline partners to which
we provide satellite service to their aircraft terminate their agreements with us for any reason during these periods, we may
be forced to incur satellite costs in excess of connectivity revenue generated through such satellites.
Any
future international operations may fail to succeed due to risks inherent in foreign operations, including:
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legal
and regulatory restrictions, including different communications, privacy, censorship, aerospace and liability standards, intellectual
property laws and enforcement practices;
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changes
in international regulatory requirements and tariffs;
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restrictions
on the ability of U.S. companies to do business in foreign countries, including restrictions on foreign ownership of telecommunications
providers imposed by the U.S. Office of Foreign Assets Control, which we refer to as OFAC;
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inability
to find content or service providers to partner with on commercially reasonable terms, or at all;
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compliance
with the Foreign Corrupt Practices Act, the (U.K.) Bribery Act 2010 and other similar corruption laws and regulations in the
jurisdictions in which we operate and related risks;
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difficulties
in staffing and managing foreign operations;
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currency
fluctuations; and
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potential
adverse tax consequences.
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As
a result of these obstacles, we may find it difficult or prohibitively expensive to grow our business internationally or we may
be unsuccessful in our attempt to do so, which could harm our future operating results and financial condition.
We
may not be successful in our efforts to develop and monetize new products and services that are currently in development, including
our operations-oriented communications services.
In
order to continue to meet the evolving needs of our future airline partners and customers, we must continue to develop new products
and services that are responsive to those needs. Our ability to realize the benefits of enabling airlines, other aircraft operators
and to use these applications, including monetizing our services at a profitable price point, depends, in part, on the adoption
and utilization of such applications by airlines, other aircraft operators and other companies in the aviation industry such as
aircraft equipment suppliers, and we cannot be certain that airlines, other aircraft operators and others in the aviation industry
will adopt such offerings in the near term or at all. We also expect to continue to rely on third parties to develop and offer
the operational applications to be used to gather and process data transmitted on our network between the aircraft and the ground,
and we cannot be certain that such applications will be compatible with our network or onboard equipment or otherwise meet the
needs of airlines or other aircraft operators. If we are not successful in our efforts to develop and monetize new products and
services, including our operations-oriented communications services, our future business prospects, financial condition and results
of operations would be materially adversely affected.
A
future act or threat of terrorism or other events could result in a prohibition on the use of Wi-Fi enabled devices on aircraft.
A
future act of terrorism, the threat of such acts or other airline accidents could have an adverse effect on the airline industry.
In the event of a terrorist attack, terrorist threats or unrelated airline accidents, the industry would likely experience significantly
reduced passenger demand. The U.S. federal government or foreign governments could respond to such events by prohibiting the use
of Wi-Fi enabled devices on aircraft, which would eliminate demand for our equipment and service. In addition, any association
or perceived association between our equipment or service and accidents involving aircraft on which our equipment or service operates
would likely have an adverse effect on demand for our equipment and service. Reduced demand for our products and services would
adversely affect our business prospects, financial condition and results of operations.
If
our efforts to retain and attract customers are not successful, our revenue will be adversely affected.
We
expect to generate substantially all of our revenue from sales of services, some of which will be on a subscription basis. We
must be able to retain subscribers and attract new and repeat customers. If we are unable to effectively retain subscribers and
attract new and repeat customers, our business, financial condition and results of operations would be adversely affected.
Unreliable
service levels, lack of sufficient capacity, uncompetitive pricing, lack of availability, security risk and lack of related features
of our equipment and services are some of the factors that may adversely impact our ability to retain customers and partners and
attract new and repeat customers. If our customers are able to satisfy their in-flight entertainment needs through activities
other than broadband internet access, at no or lower cost, they may not perceive value in our products and services. If our efforts
to satisfy and retain customers and subscribers are not successful, we may not be able to attract new customers through word-of-mouth
referrals. Any of these factors could cause our customer growth rate to fall, which would adversely impact our business, financial
condition and results of operations.
The
demand for in-flight broadband internet access service may decrease or develop more slowly than we expect. We cannot predict with
certainty the development of the U.S. or international in-flight broadband internet access market or the market acceptance for
our products and services.
Our
future success depends upon growing demand for in-flight broadband internet access services, which is inherently uncertain. We
have invested significant resources towards the roll-out of new service offerings, which represent a substantial part of our growth
strategy. We face the risk that the U.S. and international markets for in-flight broadband internet access services may decrease
or develop more slowly or differently than we currently expect, or that our services, including our new offerings, may not achieve
widespread market acceptance. We may be unable to market and sell our services successfully and cost-effectively to a sufficiently
large number of customers.
Our
business depends on the continued proliferation of Wi-Fi as a standard feature in mobile devices. The growth in demand for in-flight
broadband internet access services also depends in part on the continued and increased use of laptops, smartphones, tablet computers,
and other Wi-Fi enabled devices and the rate of evolution of data-intensive applications on the mobile internet. If Wi-Fi ceases
to be a standard feature in mobile devices, if the rate of integration of Wi-Fi on mobile devices decreases or is slower than
expected, or if the use of Wi-Fi enabled devices or development of related applications decreases or grows more slowly than anticipated,
the market for our services may be substantially diminished.
Increased
costs and other demands associated with our growth could impact our ability to achieve profitability over the long term and could
strain our personnel, technology and infrastructure resources.
We
expect our costs to increase in future periods, which could negatively affect our future operating results. We expect to experience
growth in our headcount and operations, which will place significant demands on our management, administrative, technological,
operational and financial infrastructure. Anticipated future growth will require the outlay of significant operating and capital
expenditures and will continue to place strains on our personnel, technology and infrastructure. Our success will depend in part
upon our ability to contain costs with respect to growth opportunities. To successfully manage the expected growth of our operations,
on a timely and cost-effective basis we will need to continue to improve our operational, financial, technological and management
controls and our reporting systems and procedures. In addition, as we continue to grow, we must effectively integrate, develop
and motivate a large number of new employees, and we must maintain the beneficial aspects of our corporate culture. If we fail
to successfully manage our growth, it could adversely affect our business, financial condition and results of operations.
Adverse
economic conditions may have a material adverse effect on our business.
Macro-economic
challenges are capable of creating volatile and unpredictable environments for doing business. We cannot predict the nature, extent,
timing or likelihood of any economic slowdown or the strength or sustainability of any economic recovery, worldwide, in the United
States or in the airline industry. For many travelers, air travel and spending on in-flight internet access are discretionary
purchases that they can eliminate in difficult economic times. Additionally, a weaker business environment may lead to a decrease
in overall business travel, which is an important contributor to our service revenue. These conditions may make it more difficult
or less likely for customers to purchase our equipment and services. If economic conditions in the United States or globally deteriorate
further or do not show improvement, we may experience material adverse effects to our business, cash flow and results of operations.
Our
operating results may fluctuate unpredictably and may cause us to fail to meet the expectations of investors, adversely affecting
our stock price.
We
operate in a highly dynamic industry and our future quarterly operating results may fluctuate significantly. Our future revenue
and operating results may vary from quarter to quarter due to many factors, many of which are not within our control. As a result,
comparing our operating results on a period-to-period basis may not be meaningful. Further, it is difficult to accurately forecast
our revenue, margin and operating results, and if we fail to match our expected results or the results expected by financial analysts
or investors, the future trading price of our common stock may be adversely affected.
In
addition, due to generally lower demand for business travel during the summer months and holiday periods, and leisure and other
travel at other times during the year, our quarterly results may not be indicative of results for the full year. Due to these
and other factors, quarter-to-quarter comparisons of our historical operating results should not be relied upon as accurate indicators
of our future performance.
If
our marketing and advertising efforts fail to generate revenue on a cost-effective basis, or if we are unable to manage our marketing
and advertising expenses, it could harm our results of operations and growth.
Our
future growth and profitability, as well as the maintenance and enhancement of our brands, will depend in large part on the effectiveness
and efficiency of our future marketing and advertising expenditures. We plan to use a diverse mix of television, print, trade
show and online marketing and advertising programs to promote our business. Significant increases in the pricing of one or more
of our marketing and advertising channels could increase our expenses or cause us to choose less expensive, but potentially less
effective, marketing and advertising channels. In addition, to the extent we implement new marketing and advertising strategies,
we may in the future have significantly higher expenses. We may in the future incur, marketing and advertising expenses significantly
in advance of the time we anticipate recognizing revenue associated with such expenses, and our marketing and advertising expenditures
may not result in increased revenue or generate sufficient levels of brand awareness. If we are unable to maintain our marketing
and advertising channels on cost-effective terms, our marketing and advertising expenses could increase substantially, our customer
levels could be affected adversely, and our business, financial condition and results of operations may suffer.
Regulation
by United States and foreign government agencies, including the Federal Aviation Administration and the Federal Communications
Commission, may increase our costs of providing service or require us to change our services.
We
are subject to various regulations, including those regulations promulgated by various federal, state and local regulatory agencies
and legislative bodies and comparable agencies outside the United States where we may do business. The two U.S. government agencies
that have primary regulatory authority over our operations are the Federal Aviation Administration, or FAA, and the Federal Communications
Commission, or FCC.
The
commercial and private aviation industries, including civil aviation manufacturing and repair industries, are highly regulated
in the United States by the FAA. FAA certification is required for all equipment we install on commercial aircraft and type certificated
business aircraft, and certain of our operating activities require that we obtain FAA certification as a parts manufacturer. As
discussed in more detail in the section entitled “Business—Regulation—Federal Aviation Administration,”
FAA approvals required to operate our business include Supplemental Type Certificates, or STCs and Parts Manufacturing Authorities,
or PMAs. Obtaining STCs and PMAs is an expensive and time-consuming process that requires significant focus and resources. Any
inability to obtain, delay in obtaining, or change in, needed FAA certifications, authorizations, or approvals, could have an
adverse effect on our ability to meet our installation commitments, manufacture and sell parts for installation on aircraft, or
expand our business and could, therefore, materially adversely affect our growth prospects, business and operating results. The
FAA closely regulates many of our operations. If we fail to comply with the FAA’s many regulations and standards that apply
to our activities, we could lose the FAA certifications, authorizations, or other approvals on which our manufacturing, installation,
maintenance, preventive maintenance, and alteration capabilities are based. In addition, from time to time, the FAA or comparable
foreign agencies adopt new regulations or amend existing regulations. The FAA could also change its policies regarding the delegation
of inspection and certification responsibilities to private companies, which could adversely affect our business. To the extent
that any such new regulations or amendments to existing regulations or policies apply to our activities, those new regulations
or amendments to existing regulations generally increase our costs of compliance.
As
a broadband Internet provider, we must comply with the Communications Assistance for Law Enforcement Act of 1994, or CALEA, which
requires communications carriers to ensure that their equipment, facilities and services can accommodate certain technical capabilities
in executing authorized wiretapping and other electronic surveillance. Currently, our CALEA solution is being deployed in our
network. However, we could be subject to an enforcement action by the FCC or law enforcement agencies for any delays related to
meeting, or if we fail to comply with, any current or future CALEA, or similarly mandated law enforcement related, obligations.
Such enforcement actions could subject us to fines, cease and desist orders, or other penalties, all of which could adversely
affect our business. Further, to the extent the FCC adopts additional capability requirements applicable to broadband Internet
providers, its decision may increase the costs we incur to comply with such regulations.
In
addition to these U.S. agencies, we are also subject to regulation by foreign government agencies that choose to assert jurisdiction
over us as a result of the service we provide on aircraft that fly international routes. Adverse decisions or regulations of these
U.S. and foreign regulatory bodies could negatively impact our operations and costs of doing business and could delay the roll-out
of our services and have other adverse consequences for us. Our ability to obtain certain regulatory approvals to offer our services
internationally may also be the responsibility of a third- party, and, therefore, may be out of our control. We are unable to
predict the scope, pace or financial impact of regulations and other policy changes that could be adopted by the various governmental
entities that oversee portions of our business.
If
government regulation of the Internet, including e-commerce or online video distribution changes, we may need to change the way
we conduct our business to a manner that incurs greater operating expenses, which could harm our results of operations.
The
current legal environment for Internet communications, products and services is uncertain and subject to statutory, regulatory
or interpretive change. We cannot be certain that we, our vendors and media partners or our customers are currently in compliance
with applicable regulatory or other legal requirements in the countries in which our service is used. Our failure, or the failure
of our vendors and media partners, customers and others with whom we transact business to comply with existing or future legal
or regulatory requirements could materially adversely affect our business, financial condition and results of operations. Regulators
may disagree with our interpretations of existing laws or regulations or the applicability of existing laws or regulations to
our business, and existing laws, regulations and interpretations may change in unexpected ways.
For
example, our mobile wireless broadband Internet access services were previously classified as information services, and not as
telecommunications services. Therefore, these services were not subject to FCC common carrier regulation. However, effective June
12, 2015, the FCC reclassified mobile (and fixed) broadband Internet access services as Title II telecommunications services pursuant
to the Open Internet Order. The Open Internet Order also adopted broad new net neutrality rules. For example, broadband providers
may not block access to lawful content, applications, services, or non-harmful devices. Broadband providers also may not impair
or degrade lawful Internet traffic on the basis of content, applications, services, or non-harmful devices. In addition, broadband
providers may not favor some lawful Internet traffic over other lawful traffic in exchange for consideration of any kind, and
they may not prioritize the content and services of their affiliates. Other than for paid prioritization, the rules contain an
exception for “reasonable network management.” The Open Internet Order recognizes that whether a network management
practice is reasonable varies according to the broadband technology involved and may provide more flexibility to implement network
management practices in the context of our capacity-constrained air-to-ground and satellite broadband networks.
Other
jurisdictions may adopt similar or different regulations that could affect our ability to use “network management”
techniques. Likewise, the United States and the European Union, among other jurisdictions, are considering proposals regarding
data protection that, if adopted, could impose heightened restrictions on certain of our activities relating to the collection
and use of data of end users. Further, as we promote exclusive content and services and increase targeted advertising with our
media partners to customers of our services, we may attract increased regulatory scrutiny.
We
cannot be certain what positions regulators may take regarding our compliance with, or lack of compliance with, current and future
legal and regulatory requirements or what positions regulators may take regarding any past or future actions we have taken or
may take in any jurisdiction. Regulators may determine that we are not in compliance with legal and regulatory requirements, and
impose penalties, or we may need to make changes to our services, which could be costly and difficult. Any of these events would
adversely affect our operating results and business.
Our
possession and use of personal information and the use of credit cards by our customers present risks and expenses that could
harm our business. Unauthorized disclosure or manipulation of such data, whether through breach of our network security or otherwise,
could expose us to costly litigation and damage our reputation.
Maintaining
our network security is of critical importance because our online systems will store confidential registered user, employee and
other sensitive data, such as names, email addresses, addresses and other personal information. We will depend on the security
of our networks and the security of the network infrastructures of our third-party telecommunications service providers, our customer
support providers and our other vendors. Unauthorized use of our, or our third-party service providers’, networks, computer
systems and services could potentially jeopardize the security of confidential information, including credit card information,
of our future customers. There can be no assurance that any security measures we, or third parties, take will be effective in
preventing these activities. As a result of any such breaches, customers may assert claims of liability against us as a result
of any failure by us to prevent these activities. Further, our in-cabin network operates as an open, unsecured Wi-Fi hotspot,
and non-encrypted transmissions users send over this network may be vulnerable to access by users on the same plane. These activities
may subject us to legal claims, adversely impact our reputation, and interfere with our ability to provide our services, all of
which could have a material adverse effect on our business prospects, financial condition and results of operations.
Failure
to protect confidential customer data or to provide customers with adequate notice of our privacy policies could also subject
us to liabilities imposed by United States federal and state regulatory agencies or courts. For example, the FCC’s Consumer
Proprietary Network Information, or CPNI rules, applicable to our satellite-based offerings, require us to comply with a range
of marketing and privacy safeguards. The FTC could assert jurisdiction to impose penalties related our service if it found our
privacy policies or security measures to be inadequate under existing federal law. We could also be subject to certain state laws
that impose data breach notification requirements, specific data security obligations, or other consumer privacy-related requirements.
Our failure to comply with any of these rules or regulations could have an adverse effect on our business, financial condition
and results of operations.
Other
countries in which we may operate or from which our services may be offered, including those in the European Union, also have
certain privacy and data security requirements that may apply to our business, either now or in the future. These countries’
laws may in some cases be more stringent than the requirements in the United States. For example, European Union member countries
have specific requirements relating to cross border transfers of personal information to certain jurisdictions, including to the
United States. In addition, some countries have stricter consumer notice and/or consent requirements relating to personal information
collection, use or sharing. Moreover, international privacy and data security regulations may become more complex. For example,
the European Union is considering a draft proposed data protection regulation which, if enacted, may result in even more restrictive
privacy-related requirements. Our failure to comply with other countries’ privacy or data security-related laws, rules or
regulations could also have an adverse effect on our business, financial condition and results of operations.
In
addition, our customers will use credit cards to purchase our products and services. Problems with our or our vendors billing
software could adversely affect our customer satisfaction and could cause one or more of the major credit card companies to disallow
our continued use of their payment services. In addition, if our billing software fails to work properly and, as a result, we
do not automatically charge our subscribers’ credit cards on a timely basis or at all, our business, financial condition
and results of operations could be adversely affected.
We
depend upon third parties to manufacture equipment components and to provide services for our network.
We
rely on third-party suppliers for equipment components that we use to provide our services. The supply of third- party components
could be interrupted or halted by a termination of our relationships, a failure of quality control or other operational problems
at such suppliers or a significant decline in their financial condition. If we are not able to continue to engage suppliers with
the capabilities or capacities required by our business, or if such suppliers fail to deliver quality products, parts, equipment
and services on a timely basis consistent with our schedule, our business prospects, financial condition and results of operations
could be adversely affected.
We
may fail to recruit, train and retain the highly skilled employees that are necessary to remain competitive and execute our growth
strategy. The loss of one or more of our key personnel could harm our business.
Competition
for key technical personnel in high-technology industries such as ours is intense. We believe that our future success depends
in large part on our continued ability to hire, train, retain and leverage the skills of qualified engineers and other highly
skilled personnel needed to maintain and grow our business and technology. We may not be as successful as our competitors at recruiting,
training, retaining and utilizing these highly skilled personnel. In particular, we may have more difficulty attracting or retaining
highly skilled personnel during periods of poor operating performance. Any failure to recruit, train and retain highly skilled
employees could negatively impact our business and results of operations.
We
depend on the continued service and performance of our key personnel, including Jeffrey Wun, our Chairman, Chief Executive Officer
and President. Mr. Wun became our Chief Executive Officer and President effective December 30, 2017 and was appointed Chairman
on January 22, 2018. Mr. Wun replaced Peter Chiou who was replaced from these positions and who we expect will become a consultant
to the Company for a short period of time. Such individuals have acquired specialized knowledge and skills with respect to our
operations. As a result, if any of these individuals were to leave us, we could face substantial difficulty in hiring qualified
successors and could experience a loss of productivity while any such successor obtains the necessary training and expertise.
We do not maintain key man insurance on any of our officers or key employees. In addition, much of our key technology and systems
are custom-made for our business by our personnel. The loss of key personnel, including key members of our management team, as
well as certain of our key marketing or technology personnel, could disrupt our operations and have an adverse effect on our ability
to grow our business.
We
have identified material weaknesses in our internal control over financial reporting. If we fail to develop or maintain an effective
system of internal controls, we may not be able to accurately report our financial results and prevent fraud. As a result, current
and potential stockholders could lose confidence in our financial statements, which would harm the trading price of our common
stock.
Companies
that file reports with the SEC, including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002,
or SOX 404. SOX 404 requires management to establish and maintain a system of internal control over financial reporting and annual
reports on Form 10-K filed under the Exchange Act to contain a report from management assessing the effectiveness of a company’s
internal control over financial reporting. Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010, public companies that are large accelerated filers or accelerated filers must include in their annual
reports on Form 10-K an attestation report of their regular auditors attesting to and reporting on management’s assessment
of internal control over financial reporting. Non-accelerated filers and smaller reporting companies, like us, are not required
to include an attestation report of their auditors in annual reports.
A
management discussion of our “Controls and Procedures” is included in our latest quarterly report on Form 10-K for
the period ended December 31, 2017. During its evaluation of the effectiveness of internal control over financial
reporting as of December 31, 2017, management identified a material weakness. The material weakness was associated with our
lack of sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience
in the application of accounting principles generally accepted in the United States commensurate with our financial reporting
requirements and our need to rely heavily on the use of external legal and accounting professionals to mitigate these deficiencies.
We are undertaking remedial measures, which measures will take time to implement and test, to address this material weakness.
There can be no assurance that such measures will be sufficient to remedy the material weakness identified or that additional
material weaknesses or other control or significant deficiencies will not be identified in the future. If we continue to experience
material weaknesses in our internal controls or fail to maintain or implement required new or improved controls, such circumstances
could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements,
or adversely affect the results of periodic management evaluations and, if required, annual auditor attestation reports. Each
of the foregoing results could cause investors to lose confidence in our reported financial information and lead to a decline
in our stock price.
Our
co-founder, Daniel Shih, would be considered a “bad actor” under Rule 506(d) of the Securities Act but for the fact
that SEC interpretations of Rule 506(d) provide that disqualification under Rule 506(d) is not triggered by actions taken in jurisdictions
other than the United States, such as convictions, court orders, or injunctions in a foreign court, or regulatory orders issued
by foreign regulatory authorities.
Our
co-founder (and, thus, a “promoter” as that term is defined in Rule 405 under the Securities Act), Daniel Shih, was
involved in two cases in Taiwan the first of which could have resulted in his being deemed a “bad actor” under Rule
506(d) if such cases were in the United States and not Taiwan. SEC compliance and disclosure interpretation 260.20 provides that
disqualification under Rule 506(d) is not triggered by actions taken in jurisdictions other than the United States and accordingly,
Mr. Shih is not a bad actor because of such interpretation.
The
first case related to the publicly traded shares of Kitai Construction and Development Inc., a listed company on the Taiwanese
over-the-counter market (“Kitai”). From 2007 to 2008, Mr. Shih’s father served as the General Manager of Kitai.
Prior to the annual meeting of the stockholders in 2008, the incumbent management team, together with friends and family members
(including Mr. Shih) collectively purchased a large number of shares of Kitai common stock in the open market in order to obtain
sufficient votes to maintain the current management team’s control of Kitai. Kitai’s stock price fluctuated as
a result of these purchases. Acting upon a report from an opposing party in the fight for Kitai’s management control,
the Taipei district prosecutor’s office brought an action at the district court level, or the Court of First Instance, against
several defendants, including Mr. Shih, alleging a violation of the Taiwanese security law provision that prohibits “continuing
buying of shares with an attempt to influence stock prices.” Counsel for the defendants argued that there was no attempt
to influence stock prices because (1) the real purpose of the buying activities was to maintain management control of Kitai and
was not to influence the stock prices and (2) the defendants did not attempt to sell any of the shares and there was no sale of
Kitai shares by the defendants during the relevant time period. Prior to the incident that led to the charge, Mr. Shih owned
no shares of Kitai stock and, other than the fact that Mr. Shih’s father was General Manager of Kitai, he had no relationship
with Kitai. In this case, the Court of First Instance found Mr. Shih guilty and sentenced him to four years in prison. In August
2016, Mr. Shih filed with the Taiwanese appellate court, or the Court of Second Instance, to appeal the decision of the Court
of First Instance. Although only in the preparatory states, the Court of Second Instance will conduct a full re-trial of
the case, as is the practice under Taiwanese law, with a full substantive review including both factual and legal aspects of the
case. While this second trial is pending, Mr. Shih’s sentence has been stayed, without bond. Because, as the defendant
in the case, Mr. Shih’s personal appearance will be required at most of the proceedings of the Court of Second Instance,
which proceedings could continue for an extended period of time, which would greatly affect Mr. Shih’s ability to conduct
his business affairs, Mr. Shih may decide to negotiate with the prosecutor for a settlement, which may result in probation and
the payment of a penalty or the requirement to make a substantive donation to public charities. Mr. Shih and his local legal counsel
in Taiwan believe that the Court of First Instance was in error in finding him guilty because he had no intent to manipulate the
Kitai stock prices and Mr. Shih did not profit from his purchases of Kitai shares.
In
another case, in 2016, a significant shareholder of Priceplay Taiwan, Inc., Chernan Technology Ltd., Co., or Chernan, filed a
criminal complaint against several defendants alleging fraud in inducing Chernan to purchase shares of Priceplay Taiwan, Inc. The
case was accepted by the New Taipei prosecutors’ office. Although Daniel Shih was not listed as a defendant, the original
prosecutor assigned to this case believed that Mr. Shih possessed material information relating to the defendants’ alleged
activities and threatened to charge Mr. Shih if he did not cooperate. Subsequently, a new prosecutor who was assigned to the case
expressed his desire that the parties reach a private settlement so that the case could be dismissed. The parties have formally
begun a civil mediation process, and Mr. Shih is not a party in this mediation. If there is no settlement in the mediation process,
which could take from up to one to three years to resolve, the then prosecutor would have to decide at that time whether to revert
to the criminal proceeding or move to have the matter resolved through a civil litigation. Mr. Shih and his local Taiwan
legal counsel strongly believe that it is unlikely that Mr. Shih will be charged in any criminal proceeding relating to this matter.
Mr. Shih is the Chairman of Priceplay.com, Inc., a 70% owned subsidiary of Priceplay Taiwan, Inc. Mr. Shih was not, and is not,
an officer, director or stockholder of Priceplay Taiwan, Inc.
Daniel Shih has relinquished “beneficial
ownership” of substantially all of his equity interests in our company (whether held directly or indirectly) in a manner
acceptable to our company. This means that Mr. Shih no longer,
directly or indirectly, through
any contract, arrangement, understanding, relationship or otherwise has or shares (i) voting power, which includes the power to
vote, or to direct the voting of, securities, and/or (ii) investment power, which includes the power to dispose, or to direct
the disposition of, shares of our common stock, except for a de minimus number of shares of our common stock which will continue
to be beneficially owned by him directly and by way of his being a control person in another entity that owns shares of our common
stock. Mr. Shih will, however, retain a pecuniary interest in some of the shares of our common stock over which he has relinquished
voting and investment power. Mr. Shih has also removed himself from any and all activities relating to our business, including,
but not limited to managerial, directional, advisory, promotional, developmental and fund-raising activities,
effective
upon the effectiveness of the registration statement relating to this prospectus. Additionally, Barbie Shih, Daniel Shih’s
wife, was not re-elected to our board of directors on December 29, 2017. As a result of these events, neither Mr. Shih nor Ms.
Shih will maintain any active affiliation with, or material beneficial ownership interest in, our company.
Mr.
Shih will not be able to restore his status as a “beneficial owner” of the shares of our common stock that he previously
beneficially owned nor will he be able to return to any active role or executive function in our company unless he is exonerated
from any wrongdoing with respect to the two matters in Taiwan discussed above or the relevant time period prescribed in Rule 506(d)
has expired.
Due
to the nature of the actions described above involving our co-founder/ promoter, Daniel Shih, potential investors may not want
to invest in our company and third parties may not want to do business with us. The deterrence of investors from investing in
our company or of third parties from doing business with us because of reputational issues associated with the actions against
Mr. Shih that are described above could have a material adverse effect on our business, financial condition, operations, results
of operations and prospects.
We
believe our business depends on strong brands, and if we do not develop, maintain and enhance our brand, our ability to gain new
customers and retain customers may be impaired.
We
believe that our brands will be a critical part of our business. We expect to collaborate extensively with our future airline
partners on the look and feel of the in-flight homepage that their passengers encounter when logging into our service in flight.
In order to maintain strong relationships with our airline partners, we may have to reduce the visibility of our brand or make
other decisions that do not promote and maintain our brand. In addition, many of our trademarks contain words or terms having
a somewhat common usage and, as a result, we may have trouble registering or protecting them in certain jurisdictions. If we fail
to promote and maintain our brand, or if we incur significant expenses to promote the brands and are still unsuccessful in maintaining
strong brands, our business prospects, financial condition and results of operations may be adversely affected.
Businesses
or technologies we acquire could prove difficult to integrate, disrupt our ongoing business, dilute stockholder value or have
an adverse effect on our results of operations.
As
part of our business strategy, we may engage in acquisitions of businesses or technologies to augment our organic or internal
growth. We do not have any relevant experience with integrating and managing acquired businesses or assets. Acquisitions involve
challenges and risks in negotiation, execution, valuation and integration. Moreover, we may not be able to find suitable acquisition
opportunities on terms that are acceptable to us. Even if successfully negotiated, closed and integrated, certain acquisitions
may not advance our business strategy, may fall short of expected return-on-investment targets or may fail. Any future acquisition
could involve numerous risks, including:
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potential
disruption of our ongoing business and distraction of management;
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difficulty
integrating the operations and products of the acquired business;
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use
of cash to fund the acquisition or for unanticipated expenses;
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limited
market experiences in new businesses;
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exposure
to unknown liabilities, including litigation against the companies we acquire;
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additional
costs due to differences in culture, geographical locations and duplication of key talent;
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delays
associated with or resources being devoted to regulatory review and approval;
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acquisition-related
accounting charges affecting our balance sheet and operations;
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difficulty
integrating the financial results of the acquired business in our consolidated financial statements;
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controls
in the acquired business;
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potential
impairment of goodwill;
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dilution
to our current stockholders from the issuance of equity securities; or
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potential
loss of key employees or customers of the acquired company.
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In
the event that we enter into any acquisition agreements, closing of the transactions could be delayed or prevented by regulatory
approval requirements, including antitrust review, or other conditions. We may not be successful in addressing these risks or
any other problems encountered in connection with any attempted acquisitions, and we could assume the economic risks of such failed
or unsuccessful acquisitions.
Expenses
or liabilities resulting from litigation could adversely affect our results of operations and financial condition.
From
time to time, we may be subject to claims or litigation in the ordinary course of our business, including for example, claims
related to employment matters and class action lawsuits. Our operations are characterized by the use of new technologies and services
across multiple jurisdictions that implicate a number of statutory schemes and a range of rules and regulations that may be subject
to broad or creative interpretation, which may subject to us to litigation, including class action lawsuits, the outcome of which
may be difficult to assess or quantify due to the potential ambiguity inherent in these regulatory schemes and/or the nascence
of our technologies and services. Plaintiffs in these types of litigation may seek recovery of very large or indeterminate amounts,
and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. Any such
claims or litigation may be time-consuming and costly, divert management resources, require us to change our products and services,
or have other adverse effects on our business. Any of the foregoing could have a material adverse effect on our results of operations
and could require us to pay significant monetary damages. In addition, costly and time-consuming litigation could be necessary
to enforce our existing contracts and, even if successful, could have an adverse effect on us. In addition, prolonged litigation
against any airline partner, customer or supplier could have the effect of negatively impacting our reputation and goodwill with
existing and potential airline partners, customers and suppliers.
Technological
advances may harm our business.
Due
to the widening use of state-of-the-art, personal electronic devices such as Apple’s iPad, ever-increasing numbers of passengers
have their own mobile devices, which they might use to bring their own content such as movies, music or games with them on a flight.
This could decrease demand for our in-flight offerings. Carriers now also have greater technical means at their disposal to offer
passengers in-flight access to the Internet, including through our offerings and those of our competitors. At present, these offerings
do not allow passengers to fully stream content on their mobile devices. If, however, in-flight Internet access in the future
allows passengers to fully stream content on their mobile devices, this could decrease demand for our in-flight offerings. While
both trends will give rise to risks as well as opportunities for us, it is impossible to foresee at present whether and, if so,
to what extent these trends will have lasting effects. Note, too, that the in-flight entertainment systems currently in place
are unable to support these developments. Given average useful lives of 15 to 20 years, the conventional systems will continue
to dominate the in-flight entertainment industry for the foreseeable future. As a result, possible changes will happen slowly,
giving all market players sufficient time to adapt.
We
may have exposure to foreign currency risks in the future and our future hedging activities could create losses.
Currency
risks essentially arise from the fact that sales to customers and purchasing are effected in one currency while fixed costs are
incurred in other currencies. If necessary, we will engage in hedging transactions to counteract direct currency risks. However,
we cannot always guarantee that all currency risks will have been hedged in full. Severe currency fluctuations could also cause
the hedging transactions to fail if agreed thresholds (triggers) are not met or exceeded. We therefore cannot fully preclude negative
foreign currency effects in the future - some of which might be substantial - due to unforeseen exchange rate fluctuations and/or
inaccurate assessments of market developments.
We
will source our content from studios, distributors and other content providers, and any reduction in the volume of content produced
by such content providers could hurt our business by providing us with less quality content to choose from and resulting in potentially
less attractive offerings for passengers.
We
will receive content from studios, distributors and other content providers, and in some circumstances, we will depend on the
volume and quality of the content that these content providers produce. If studios, distributors or other content providers were
to reduce the volume or quality of content they make available to us over any given time period, whether because of their own
financial limitations or other factors influencing their businesses, we would have less quality content to choose from and our
programmers would have more difficulty finding relevant and appropriate content to provide to our customers. This could negatively
impact the passenger experience, which could in turn reduce the demand for our offerings, which would have a negative impact on
our revenue and results of operations.
We
are a holding company with no operations of our own, and we depend on our subsidiaries for cash.
Currently,
we are a holding company and do not have any material assets or operations other than ownership of equity interests of our subsidiaries.
Our operations are conducted almost entirely through our subsidiaries, and our ability to generate cash to meet our obligations
or to pay dividends is highly dependent on the earnings of, and receipt of funds from, our subsidiaries through dividends or intercompany
loans. The ability of our subsidiaries to generate sufficient cash flow from future operations to allow us and them to make scheduled
payments on our obligations will depend on their future financial performance, which will be affected by a range of economic,
competitive and business factors, many of which are outside of our control. We cannot assure you that the cash flow and future
earnings of our operating subsidiaries will be adequate for our subsidiaries to service their debt obligations. If our subsidiaries
do not generate sufficient cash flow from future operations to satisfy corporate obligations, we may have to: undertake alternative
financing plans (such as refinancing), restructure debt, sell assets, reduce or delay capital investments, or seek to raise additional
capital. We cannot assure you that any such alternative refinancing would be possible, that any assets could be sold, or, if sold,
of the timing of the sales and the amount of proceeds realized from those sales, that additional financing could be obtained on
acceptable terms, if at all, or that additional financing would be permitted under the terms of our various debt instruments then
in effect. Our inability to generate sufficient cash flow to satisfy our obligations, or to refinance our obligations on commercially
reasonable terms, would have an adverse effect on our business, financial condition and results of operations. Furthermore, we
and our subsidiaries may incur substantial additional indebtedness in the future that may severely restrict or prohibit our subsidiaries
from making distributions, paying dividends or making loans to us.
Risks
Relating to our Industry
Our
business is highly dependent on the airline industry, which is itself affected by factors beyond the airlines’ control.
The airline industry is highly competitive and sensitive to changing economic conditions.
Our
business is directly affected by the number of passengers flying on commercial aircraft, the financial condition of the airlines
and other economic factors. If consumer demand for air travel declines, including due to increased use of technology such as videoconferencing
for business travelers, or the number of aircraft and flights shrinks due to, among other reasons, reductions in capacity by airlines,
the number of passengers available to use our service will be reduced, which would have a material adverse effect on our business
and results of operations. Unfavorable general economic conditions and other events that are beyond the airlines’ control,
including higher unemployment rates, higher interest rates, reduced stock prices, reduced consumer and business spending, terrorist
attacks or threats and pandemics could have a material adverse effect on the airline industry. A general reduction or shift in
discretionary spending can result in decreased demand for leisure and business travel and lead to a reduction in airline flights
offered and the number of passengers flying. Further, unfavorable economic conditions could also limit airlines’ ability
to counteract increased fuel, labor or other costs though raised prices. Our airline partners operate in a highly competitive
business market and, as a result, continue to face pressure on offerings and pricing. These unfavorable conditions and the competitiveness
of the air travel industry could cause one or more of our airline partners to reduce expenditures on passenger services including
deployment of our service or file for bankruptcy. Any of these events would have a material adverse effect on our business prospects,
financial condition and results of operations.
Air
traffic congestion at airports, air traffic control inefficiencies, weather conditions, such as hurricanes or blizzards, increased
security measures, new travel-related taxes, the outbreak of disease or any other similar event could harm the airline industry.
Airlines
are subject to cancellations or delays caused by factors beyond their control. Cancellations or delays due to weather conditions
or natural disasters, air traffic control problems, breaches in security or other factors could reduce the number of passengers
on commercial flights and thereby reduce demand for the services provided by us and our products and services and harm our businesses,
results of operations and financial condition.
Risks
Relating to our Technology and Intellectual Property
We
could be adversely affected if we suffer service interruptions or delays, technology failures or damage to our equipment.
Our
reputation and ability to attract, retain and serve our future commercial airline customers will depend upon the reliable performance
of our satellite transponder capacity, network infrastructure and connectivity system. We have experienced interruptions in these
systems in the past, including component and service failures that temporarily disrupted users’ access to the Internet,
and we may experience service interruptions, service delays or technology or systems failures in the future, which may be due
to factors beyond our control. If we experience frequent system or network failures, our reputation could be harmed and our future
airline customers may have the right to terminate their contracts with us or pursue other remedies.
Our
operations and services will depend upon the extent to which our equipment and the equipment of our third-party network providers
is protected against damage from fire, flood, earthquakes, power loss, solar flares, telecommunication failures, computer viruses,
break-ins, acts of war or terrorism and similar events. Damage to our networks could cause interruptions in the services that
we will provide, which could have a material adverse effect on service revenue, our reputation and our ability to attract or retain
customers.
We
rely on service providers for certain critical components of and services relating to our satellite connectivity network.
We
currently source key components of our hardware, including the aircraft installed satellite antenna, from third parties and key
aspects of our connectivity services, including all of our satellite transponder services from SKY Perfect JSAT Corporation. While
we have written contracts with these key component and service providers, if we experience a disruption in the delivery of products
and services from either of these providers, it may be difficult for us to continue providing our own products and services to
our customers. We have experienced component delivery issues in the past and there can be no assurance that it will avoid similar
issues in the future. Additionally, the loss of the exclusive source protections that we have with our hardware provider could
eliminate our competitive advantage in the use of satellites for in-flight connectivity, which could have a material adverse effect
on our business and operations.
Assertions
by third parties of infringement, misappropriation or other violation by us of their intellectual property rights could result
in significant costs and substantially harm our business and operating results.
In
recent years, there has been significant litigation involving intellectual property rights in many technology-based industries,
including the wireless communications industry. Any infringement, misappropriation or related claims, whether or not meritorious,
is time-consuming, diverts technical and management personnel and is costly to resolve. As a result of any such dispute, we may
have to develop non-infringing technology, pay damages, enter into royalty or licensing agreements, cease providing certain products
or services or take other actions to resolve the claims. These actions, if required, may be costly or unavailable on terms acceptable
to us. Certain of our suppliers do not provide indemnity to us for the use of the products and services that these providers supply
to us. At the same time, we generally offer third-party intellectual property infringement indemnity to our customers which, in
some cases, does not cap our indemnity obligations and thus could render us liable for both defense costs and judgments. Any of
these events could result in increases in operating expenses, limit our service offerings or result in a loss of business if we
are unable to meet our indemnification obligations and our airline customers terminate or fail to renew their contracts.
We
may not be able to protect our intellectual property rights.
We
regard our trademarks, service marks, copyrights, patents, trade secrets, proprietary technologies, domain names and similar intellectual
property as important to our success. We rely on trademark, copyright and patent law, trade secret protection and confidentiality
agreements with our employees, vendors, airline customers, customers and others to protect our proprietary rights. We have sought
and obtained patent protection for certain of our technologies in the United States and certain other countries. Many of the trademarks
that we use contain words or terms having a somewhat common usage and, as a result, we may have difficulty registering them in
certain jurisdictions. We have not yet obtained registrations for our most important marks in all markets in which we may do business
in the future, including countries in Asia, Africa and the Middle East. If other companies have registered or have been using
in commerce similar trademarks for services similar to ours in foreign jurisdictions, we may have difficulty in registering, or
enforcing an exclusive right to use, our marks in those foreign jurisdictions.
There
can be no assurance that our efforts to protect our proprietary rights will be sufficient or effective, that any pending or future
patent and trademark applications will lead to issued patents and registered trademarks in all instances, that others will not
develop or patent similar or superior technologies, products or services, or that our patents, trademarks and other intellectual
property will not be challenged, invalidated, misappropriated or infringed by others. Additionally, the intellectual property
laws and enforcement practices of other countries in which our service is or may in the future be offered may not protect our
products and intellectual property rights to the same extent as the laws of the United States. If we are unable to protect our
intellectual property from unauthorized use, our brand image may be harmed and our business and results of operations may suffer.
Our
use of open source software could limit our ability to commercialize our technology.
Open
source software is software made widely and freely available to the public in human-readable source code form, usually with liberal
rights to modify and improve such software. Some open source licenses require as a condition of use that proprietary software
that is combined with licensed open source software and distributed must be released to the public in source code form and under
the terms of the open source license. Accordingly, depending on the manner in which such licenses were interpreted and applied,
we could face restrictions on our ability to commercialize certain of our products and we could be required to (i) release the
source code of certain of our proprietary software to the public, including competitors; (ii) seek licenses from third parties
for replacement software; and/or (iii) re-engineer our software in order to continue offering our products. Such consequences
could materially adversely affect our business.
The
satellites that we currently rely on or may rely on in the future have minimum design lives, but could fail or suffer reduced
capacity before then.
The
usefulness of the satellites upon which we currently rely and may rely on in the future is limited by each satellite’s minimum
design life. For example, the satellites through which we provide our service have minimum design lives ranging from 10 to 15
years. Our ability to offer in-flight connectivity and alleviate capacity constraints throughout our network depends on the continued
operation of the satellites or any replacement satellites, each of which has a limited useful life. We can provide no assurance,
however, as to the actual operational lives of those or future satellites, which may be shorter than their design lives, nor can
we provide assurance that replacement satellites will be developed, authorized or successfully deployed.
In
the event of a failure or loss of any of these satellites, our satellite service providers may relocate another satellite and
use it as a replacement for the failed or lost satellite, which could have an adverse effect on our business, financial condition
and results of operations. Such a relocation may require regulatory approval, including through, among other things, a showing
that the replacement satellite would not cause additional interference compared to the failed or lost satellite. We cannot be
certain that our satellite service provider could obtain such regulatory approval. In addition, we cannot guarantee that another
satellite will be available for use as a replacement for a failed or lost satellite, or that such relocation can be accomplished
without disrupting or otherwise adversely impacting our business.
Satellites
that are not yet in service are subject to construction and launch related risks.
Satellite
construction and launch are subject to significant risks, including delays, launch failure and incorrect orbital placement. Launch
failures result in significant delays in the deployment of satellites because of the need both to construct replacement satellites
and to obtain other launch opportunities. Construction and launch delays could materially and adversely affect our ability to
generate revenues.
A
failure to raise sufficient capital will delay or prohibit our building of a satellite ground station and related data center,
which will inhibit our business development.
Because
our IFEC services will require the transmission and processing of large amounts of data, we will need to build satellite ground
stations and related data centers in our regions of operation, to facilitate the effectiveness and efficiency of our IFEC services.
If we are not able to raise an amount of capital sufficient to purchase land for and build a satellite ground station and data
center near our area of operations, initially in the Asia region, we may not be able to provide our IFEC services in an efficient
and operationally effective way and, as a result, our business prospects and results of operations could suffer.
Risks
Related to Ownership of our Common Stock
Our common stock is quoted on
the OTCQX Best Market, which may have an unfavorable impact on our stock price and liquidity. Our common stock may not be eligible
for listing on a national securities exchange.
Our common stock is quoted on the OTCQX
Best Market. The OTCQX Best Market is a significantly more limited market than the New York Stock Exchange or The Nasdaq Stock
Market. The quotation of our shares on the OTCQX may result in a less liquid market available for existing and potential stockholders
to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact
on our ability to raise capital in the future. We plan to list our common stock on the NYSE or the Nasdaq as soon as practicable.
While we believe that we will meet all of the quantitative and qualitative listing standards of either the NYSE or the Nasdaq
in the future, there is no assurance that we will be able to do so. Moreover, we will not be eligible to list our common stock
on the NYSE or the Nasdaq until after, at minimum, the filing of audited financial statements for the quarter ended March 31,
2018 with the SEC in order to meet the “seasoning period” requirements of any national securities exchange. As a result,
there may be a delay between the closing of your purchase of our common stock in this offering and the listing of our common
stock on a national securities exchange. In addition, even if we do obtain such a listing, there can be no assurance that we will
be able to maintain such listing in the future. As a result, investors may find it difficult to buy or sell or obtain accurate
quotations for our common stock, and the liquidity of our common stock may be limited. These factors may have an adverse impact
on the trading and price of our common stock.
We
cannot predict the extent to which an active public trading market for our common stock will develop or be sustained. If an active
public trading market does not develop or cannot be sustained, you may be unable to liquidate your investment in our common stock.
At
present, there is minimal public trading in our common stock. We cannot predict the extent to which an active public market for
our common stock will develop or be sustained due to a number of factors, including the fact that we are a small company that
is relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate
or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be
reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares of common stock until
such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity
in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity
that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that an
active public trading market for our common stock will develop or be sustained. If such a market cannot be sustained, you may
be unable to liquidate your investment in our common stock.
Our
common stock may be subject to significant price volatility which may have an adverse effect on your ability to liquidate your
investment in our common stock.
The
market for our common stock may be characterized by significant price volatility when compared to seasoned issuers, and we expect
that our share price will be more volatile than a seasoned issuer for the indefinite future. The potential volatility in our share
price is attributable to a number of factors. First, our shares of common stock may be sporadically and/or thinly traded. As a
consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately
influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in
the event that a large number of our shares of common stock are sold on the market without commensurate demand, as compared to
a seasoned issuer that could better absorb those sales without adverse impact on its share price. Secondly, an investment in us
is a speculative or “risky” investment due to our lack of meaningful profits to date and uncertainty of future profits.
As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment
in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater
discounts than would be the case with the stock of a seasoned issuer.
We
may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.
The
SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market
price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock
is a “penny stock” and is subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes
additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers
and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to
sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers
to sell any of our securities in the secondary market, thus possibly making it more difficult for us to raise additional capital.
For
any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of
a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales
commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information
on the limited market in penny stock.
There
can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common
stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the
SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction
would be in the public interest.
Substantial
future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price.
Sales of substantial amounts of our common
stock in the public market after this Offering, or the perception that these sales could occur, could adversely affect the price
of our common stock and could impair our ability to raise capital through the sale of additional shares. Following this Offering,
we will have approximately 42,048,332 shares of common stock outstanding (assuming the minimum number of shares are sold in the
offering), 48,518,921 shares of common stock outstanding (assuming the maximum number of shares are sold in the offering), or
49,577,744 shares of common stock outstanding (assuming the over-subscription amount is exercised in full). All of the shares
of common stock to be sold in this Offering will be freely tradable without restriction or further registration under the federal
securities laws. The remaining 26,058,303, or 62.0% (assuming the minimum number of shares are sold) or 53.7% (assuming the maximum
numbers of shares are sold) or 52.6% (assuming the over-subscription amount is exercised in full), of our outstanding common stock
will be subject to restrictions on resale under U.S. securities laws. Holders of 26,058,303 of these shares have agreed not to
sell these shares for at least 180 days following the date of this Prospectus.
We
have broad discretion in the use of the net proceeds from this Offering, and our use of the Offering proceeds may not yield a
favorable return on your investment.
We
expect to use most of the net proceeds from this Offering for working capital, business development, product development and capital
expenditure. However, our management has broad discretion over how these proceeds are to be used and based on unforeseen technical,
commercial or regulatory issues could spend the proceeds in ways with which you may not agree. Moreover, the proceeds may not
be invested effectively or in a manner that yields a favorable or any return, and consequently, this could result in financial
losses that could have a material adverse effect on our business, financial condition and results of operations.
We
have never paid cash dividends on our stock and do not intend to pay dividends for the foreseeable future.
We
have paid no cash dividends on any class of our stock to date and we do not anticipate paying cash dividends in the near term.
For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we
do not anticipate paying any cash dividends on our common stock. Accordingly, investors must be prepared to rely on sales of their
common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should
not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our board of
directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by
applicable law and other factors our board deems relevant.
Fulfilling
our obligations incident to being a public company, including with respect to the requirements of and related rules under the
Sarbanes-Oxley Act of 2002, is expensive and time-consuming, and any delays or difficulties in satisfying these obligations could
have a material adverse effect on our future results of operations and our stock price.
As
a public company, the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC require us to implement various
corporate governance practices and adhere to a variety of reporting requirements and complex accounting rules. Compliance with
these public company obligations requires us to devote significant time and resources and places significant additional demands
on our finance and accounting staff and on our financial accounting and information systems. We plan to hire additional accounting
and financial staff with appropriate public company reporting experience and technical accounting knowledge. Other expenses associated
with being a public company include increased auditing, accounting and legal fees and expenses, investor relations expenses, increased
directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees,
as well as other expenses.
We
are required under the Sarbanes-Oxley Act of 2002 to document and test the effectiveness of our internal control over financial
reporting. In addition, we are required under the Exchange Act to maintain disclosure controls and procedures and internal control
over financial reporting. Any failure to maintain effective controls or implement required new or improved controls, or difficulties
encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If
we are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in
the reliability of our financial statements. This could result in a decrease in the value of our common stock. Failure to comply
with the Sarbanes-Oxley Act of 2002 could potentially subject us to sanctions or investigations by the SEC or other regulatory
authorities.
Investors in this offering will experience immediate and substantial dilution.
The offering price of $8.50 per share
is substantially higher than the net tangible book value per share of our common stock immediately following this offering. Therefore,
if you purchase common stock in the offering, you will experience immediate and substantial dilution in net tangible book value
per share in relation to the price that you paid for your shares. We expect the dilution as a result of the offering to be $8.3700
per share to new investors purchasing our shares in this offering if the minimum number of shares being offered are sold, $7.3218
per share to new investors purchasing our shares in this offering if the maximum number of shares being offered are sold without
exercise of the over-subscription option, and $7.1763 per share to new investors purchasing our shares in this offering if the
maximum number of shares being offered are sold and the over-subscription option is exercised in full, at the assumed offering
price of $8.50, the midpoint of the price range set forth on the cover page of this prospectus. Accordingly, if we were
liquidated at our net tangible book value, you would not receive the full amount of your investment. See “Dilution”
below.
Our board of directors has broad
discretion to issue additional securities and any such issuance may cause substantial dilution to our stockholders.
We are entitled under our articles of incorporation
to issue up to 450,000,000 shares of common stock and 50,000,000 shares of “blank check” preferred stock, although
these amounts may change in the future subject to stockholder approval. Shares of our blank check preferred stock provide our
board of directors’ broad authority to determine voting, dividend, conversion, and other rights. As of March 28, 2018, we
had issued and outstanding 41,460,097 shares of common stock and we had 10,000,000 shares of common stock reserved for issuance
under our 2017 equity incentive plan of which options to purchase 4,661,308 shares of our common stock have been granted to stockholders
of Aircom in exchange for Aircom options as a result of completion of the reverse acquisition, options to purchase 1,265,000 shares
of our common stock have been granted to certain of our officers, directors, employees and service providers, and options to purchase
4,054,011 shares of our common stock remain available for future grants under our 2017 equity incentive plan. As of March 28,
2018, we had no shares of preferred stock issued and outstanding. Accordingly, as of March 28, 2018, we could issue up to 408,539,903
additional shares of common stock (including shares reserved under our 2017 equity incentive plan) and 50,000,000 shares of “blank
check” preferred stock. Any additional stock issuances could be made at a price that reflects a discount or premium to the
then-current market price of our common stock. In addition, in order to raise capital, we may need to issue securities that are
convertible into or exchangeable for a significant amount of our common stock. Our board may generally issue those common and
preferred shares, or convertible securities to purchase those shares, without further approval by our stockholders. Any preferred
shares we may issue could have such rights, preferences, privileges and restrictions as may be designated from time-to-time by
our board, including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation provisions.
We may also issue additional securities to our directors, officers, employees and consultants as compensatory grants in connection
with their services, both in the form of stand-alone grants or under our stock incentive plans. The issuance of additional securities
may cause substantial dilution to our stockholders.
Our articles of incorporation, bylaws
and Nevada law have anti-takeover provisions that could discourage, delay or prevent a change in control, which may cause our
stock price to decline.
Our articles of incorporation, bylaws
and Nevada law contain provisions which could make it more difficult for a third party to acquire us, even if closing such a transaction
would be beneficial to our stockholders. We are currently authorized to issue up to 50,000,000 shares of “blank check”
preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of
issuance by our board of directors without further action by stockholders. The terms of any series of preferred stock may include
voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion
and redemption rights and sinking fund provisions. No shares of our preferred stock are currently outstanding. The issuance of
any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the
value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict
our ability to merge with, or sell our assets to, a third party and thereby preserve control by current management.
Provisions of our articles of incorporation,
bylaws and Nevada law also could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying
or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent
or frustrate attempts by our stockholders to replace or remove our management. In particular, our articles of incorporation, our
bylaws and Nevada law, as applicable, among other things, provide our board of directors with the ability to alter our bylaws
without stockholder approval, and provide that vacancies on our board of directors may be filled by a majority of directors in
office, although less than a quorum.
We may become subject to Nevada’s
control share acquisition laws (Nevada Revised Statutes 78.378 - 78.3793), which prohibit an acquirer, under certain circumstances,
from voting shares of a corporation’s stock after crossing specific threshold ownership percentages, unless the acquirer
obtains the approval of the issuing corporation’s stockholders. We are also subject to Nevada’s Combination with Interested
Stockholders Statute (Nevada Revised Statutes 78.411 -78.444) which prohibits an interested stockholder from entering into a “combination”
with the corporation, unless certain conditions are met. These provisions are expected to discourage certain types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to first negotiate
with our board of directors. These provisions may delay or prevent someone from acquiring or merging with us, which may cause
the market price of our common stock to decline.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections
entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and “Business” contains forward-looking statements. The words “believe,”
“may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,”
“intend,” “could,” “would,” “project,” “plan,” “ongoing,”
“expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking
statements. These forward-looking statements include, but are not limited to, statements concerning the following:
|
●
|
our future financial
and operating results;
|
|
●
|
our intentions,
expectations and beliefs regarding anticipated growth, market penetration and trends in our business;
|
|
●
|
our ability to attract
and retain customers;
|
|
●
|
our dependence on
growth in our customers’ businesses;
|
|
●
|
the effects of changing
customer needs in our market;
|
|
●
|
the effects of market
conditions on our stock price and operating results;
|
|
●
|
our ability to maintain
our competitive advantages against competitors in our industry;
|
|
●
|
our ability to timely
and effectively adapt our existing technology and have our technology solutions gain market acceptance;
|
|
●
|
our ability to introduce
new offerings and bring them to market in a timely manner;
|
|
●
|
our ability to maintain,
protect and enhance our intellectual property;
|
|
●
|
the effects of increased
competition in our market and our ability to compete effectively;
|
|
●
|
our plans to use
the proceeds from this offering;
|
|
●
|
our expectations
concerning relationship with customers and other third parties;
|
|
●
|
the attraction and
retention of qualified employees and key personnel;
|
|
●
|
future acquisitions
of our investments in complementary companies or technologies; and
|
|
●
|
our ability to comply
with evolving legal standards and regulations.
|
These forward-looking statements are subject
to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” and elsewhere in
this prospectus. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to
time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent
to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed
in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in
our forward-looking statements.
You should not rely upon forward-looking
statements as predictions of future events. Although we believe that the expectations reflected in our forward-looking statements
are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances described
in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking
statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our
expectations, except as required by law.
You should read this prospectus and the
documents that we reference in this prospectus and have filed with the Securities and Exchange Commission, or the SEC, as exhibits
to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels
of activity, performance and events and circumstances may be materially different from what we expect.
This prospectus includes market and industry
data that has been obtained from third-party sources, including industry publications, as well as industry data prepared by our
management on the basis of its knowledge of and experience in the industries in which we operate (including our management’s
estimates and assumptions relating to such industries based on that knowledge). Management’s knowledge of such industries
has been developed through its experience and participation in these industries. While our management believes the third-party
sources referred to in this prospectus are reliable, neither we nor our management have independently verified any of the data
from such sources referred to in this prospectus or ascertained the underlying economic assumptions relied upon by such sources.
Internally prepared and third-party market forecasts, in particular, are estimates only and may be inaccurate, especially over
long periods of time. In addition, the underwriter has not independently verified any of the industry data prepared by management
or ascertained the underlying estimates and assumptions relied upon by management. Furthermore, references in this prospectus
to any publications, reports, surveys or articles prepared by third parties should not be construed as depicting the complete
findings of the entire publication, report, survey or article. The information in any such publication, report, survey or article
is not incorporated by reference in this prospectus.
USE OF PROCEEDS
We estimate that the net proceeds from
the sale of common stock offered by us will be approximately $4.34 million if the minimum number of shares being offered are sold,
or approximately $56.04 million if the maximum number of shares being offered are sold without exercise of the over-subscription
option, assuming a public offering price of $8.50, the midpoint of the price range set forth on the cover of this prospectus,
after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriter’s
over-subscription option to purchase additional shares in this offering is exercised in full, we estimate that our net proceeds
will be approximately $64.50 million, after deducting underwriting discounts and commissions and estimated offering expenses payable
by us.
Use of Proceeds
|
|
Amount (Minimum Raised)
|
|
|
Amount (50% Raised)
|
|
|
Amount (75% Raised)
|
|
|
Amount (Maximum Raised without
Over-Subscription Option)
|
|
|
Amount (Maximum Raised with
Over-Subscription Option)
|
|
Working capital
|
|
$
|
3,339,328
|
|
|
$
|
15,539,328
|
|
|
$
|
14,939,328
|
|
|
$
|
15,039,328
|
|
|
$
|
15,499,328
|
|
Product development
|
|
|
1,000,000
|
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
Land and building for ground station and data center
|
|
|
-
|
|
|
|
8,300,000
|
|
|
|
23,000,000
|
|
|
|
37,000,000
|
|
|
|
45,000,000
|
|
Underwriting discount & commission
|
|
|
300,000
|
|
|
|
1,800,000
|
|
|
|
2,700,000
|
|
|
|
3,600,000
|
|
|
|
4,140,000
|
|
Offering Expenses
|
|
|
360,672
|
|
|
|
360,672
|
|
|
|
360,672
|
|
|
|
360,672
|
|
|
|
360,672
|
|
Total
|
|
$
|
5,000,000
|
|
|
$
|
30,000,000
|
|
|
$
|
45,000,000
|
|
|
$
|
60,000,000
|
|
|
$
|
69,000,000
|
|
The principal purposes of this offering
are to increase our capitalization and financial flexibility, and to increase our visibility in the marketplace. As of the date
of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds of this offering. However,
we currently intend to use the net proceeds to us from this offering, together with existing cash, primarily for general corporate
purposes, such as working capital, product development, marketing activities, and other capital expenditures including the purchase
of land for, and the building of, our first satellite ground station and data center, in the Asia region. More specifically, depending
on the amount we raise in this offering, we expect to spend between $8.3 million and $37.0 million to acquire land in Taiwan that
we will use to establish this first satellite ground station and data center. We have identified a suitable location for
such base station in the northern part of Taiwan and have begun negotiating with the local landowners the terms of an acquisition.
We expect that the approximate cost of the land per square meter will be between $1,280 and $1,565 (or $120 and $145 per
square foot) and that we will purchase between 21,830 and 24,620 square meters (between 235,000 and 265,000 square feet) of land
with an option to acquire additional contiguous land.
We may also use a portion of the net proceeds
for the acquisition of, or investment in, businesses, products, technologies or other assets that complement our business, although
we have no present commitments or agreements to enter into any material acquisitions or investments. We will have broad discretion
over the uses of the net proceeds in this offering.
As of the date
of this prospectus and except as explicitly set forth herein, we cannot specify with certainty all of the particular uses of the
net proceeds from this offering. Pending use of the net proceeds from this offering as described above, we may invest the net
proceeds in short-term interest-bearing investment grade instruments.
DETERMINATION OF
OFFERING PRICE
Our common stock
is quoted for trading on the OTC Markets Group Inc. OTCQX Best Market under the symbol “AKOM.” On March 28, 2018,
the last reported sale price of our common stock on the OTCQX Best Market was $7.50. The price of our common stock on the OTCQX
Best Market during recent periods will only be one of many factors in determining the public offering price. The public offering
price will be determined through negotiations between us and the underwriter. In addition to prevailing market conditions, the
factors to be considered in determining the public offering price include:
|
●
|
the valuations of
publicly traded companies in the United States that the underwriter believe to be comparable to us;
|
|
●
|
our financial information;
|
|
●
|
the history of,
and the prospects for, our company and the industries in which we compete;
|
|
●
|
an assessment of
our management, our past and present operations, and the prospects for, and timing of, our future revenues;
|
|
●
|
the present state
of our development; and
|
|
●
|
various valuation
measures of other companies engaged in activities like ours.
|
It is also possible
that after this offering, our securities will not trade in the public market at or above the public offering price.
DIVIDEND POLICY
We have never declared or paid cash dividends
on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our
business and do not anticipate paying any dividends on our common stock in the foreseeable future, if at all. Any future determination
to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating
results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.
CAPITALIZATION
The following table sets forth our capitalization,
as of December 31, 2017:
|
●
|
on a pro forma
basis to give effect to the sale of the minimum number of shares in this offering at the assumed public offering price of
$8.50 per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts
and commissions and other estimated offering expenses payable by us.
|
|
|
|
|
●
|
on a pro forma
basis to give effect to the sale of the maximum number of shares in this offering at the assumed public offering price of
$8.50 per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts
and commissions and other estimated offering expenses payable by us.
|
|
|
|
|
●
|
on a pro forma
basis to give effect to the sale of the minimum number of shares in this offering (assuming that the underwriter’s over-subscription
option is exercised in full) at the assumed public offering price of $8.50 per share, the midpoint of the price range set
forth on the cover of this prospectus, after deducting underwriting discounts and commissions and other estimated offering
expenses payable by us.
|
You should read this table in conjunction
with “Use of Proceeds” above as well as our “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and our financial statements and the related notes to those financial statements included elsewhere
in this prospectus.
|
|
|
|
|
As
of December 31, 2017
(1)
|
|
|
|
Actual
|
|
|
Pro Forma Minimum
|
|
|
Pro Forma Maximum (without
Over-Subscription Option
|
|
|
Pro Forma Maximum (with Over-Subscription
Option)
|
|
Cash
|
|
$
|
21,504
|
|
|
$
|
4,360,832
|
|
|
$
|
56,060,832
|
|
|
$
|
64,520,832
|
|
Other assets
|
|
|
6,591
|
|
|
|
6,591
|
|
|
|
6,591
|
|
|
|
6,591
|
|
Total assets
|
|
$
|
10,265,976
|
|
|
$
|
14,605,304
|
|
|
$
|
66,305,304
|
|
|
$
|
74,765,304
|
|
Short-term bank loan
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
Accrued expenses
|
|
|
637,675
|
|
|
|
637,675
|
|
|
|
637,675
|
|
|
|
637,675
|
|
Other payable – related parties
|
|
|
1,082,395
|
|
|
|
1,082,395
|
|
|
|
1,082,395
|
|
|
|
1,082,395
|
|
Other payable – others
|
|
|
2,081,787
|
|
|
|
2,081,787
|
|
|
|
2,081,787
|
|
|
|
2,081,787
|
|
Total liabilities
|
|
|
3,811,913
|
|
|
|
3,811,913
|
|
|
|
3,811,913
|
|
|
|
3,811,913
|
|
Shares of Common Stock, $0.001 par value Authorized – 450,000,000
shares issued and outstanding – 41,418,665 (excluding unvested restricted stock of 41,432) shares as of December 31,
2017.
|
|
|
41,418
|
|
|
|
42,006
|
|
|
|
48,477
|
|
|
|
49,536
|
|
Additional
paid-in capital
(2)
|
|
|
13,484,857
|
|
|
|
18,484,269
|
|
|
|
73,477,798
|
|
|
|
82,476,739
|
|
Accumulated Deficit
|
|
|
(7,143,788
|
)
|
|
|
(7,804,460
|
)
|
|
|
(11,104,460
|
)
|
|
|
(11,644,460
|
)
|
Total liabilities and equity
|
|
$
|
10,265,976
|
|
|
$
|
14,605,304
|
|
|
$
|
66,305,304
|
|
|
$
|
74,765,304
|
|
|
(1)
|
Gives effect to
the sale of the minimum amount, the maximum amount and the maximum amount including the over-subscription amount, at an assumed
public offering price of $8.50 per share and to reflect the application of the proceeds after deducting the estimated
underwriting discounts (6.0% commission), and our estimated offering expenses. (See note 2 below.)
|
|
(2)
|
Pro forma adjusted
for this offering’s additional paid in capital reflects the net proceeds we expect to receive, assuming the minimum
amount, the maximum amount and the maximum amount including the over-subscription amount is sold, after deducting underwriting
discount, underwriter’s expense allowance and approximately $360,672 in other expenses. We expect to receive net proceeds
of approximately $4,339,328 ($5,000,000 offering, less underwriting discount of $300,000, and offering expenses of $360,672),
if the minimum amount is raised; $56,039,328 ($60,000,000 offering, less underwriting discount of $3,600,000, and offering
expenses of $360,672), if the maximum amount is raised; and $64,499,328 ($69,000,000 offering, less underwriting discount
of $4,140,000, and offering expenses of $360,672), if the maximum amount including the over-subscription amount
is raised. Additionally, if 50% of the maximum amount is raised, we expect to receive net proceeds of approximately
$27.84 million, and if 75% of the maximum amount is raised, we expect to receive net proceeds of approximately $41.94 million.
|
DILUTION
If you invest in our securities, your
investment will be diluted immediately to the extent of the difference between the public offering price you pay in this offering,
and the pro forma net tangible book value per share of common stock immediately after this offering.
Net tangible book value (deficit) per
share represents the amount of our total tangible assets reduced by our total liabilities, divided by the outstanding shares of
common stock. Tangible assets equal our total assets less intangible assets. As of December 31, 2017, our actual net tangible
book value was $1,126,027 and our net tangible book value per share was $0.0272.
After giving effect to the sale of $5,000,000
of shares (minimum), $60,000,000 of shares (maximum without over-subscription option), or $69,000,000 of shares (maximum with
over-subscription option) in this offering at the assumed public offering price of $8.50 per share, which is the midpoint of the
price range set forth on the cover of this prospectus, and after deducting underwriting commissions and estimated offering expenses
payable by us, but without adjusting for any other change in our pro forma net tangible book value subsequent to December 31,
2017, our pro forma net tangible book value would have been $0.1300 per share of common stock if the minimum amount of shares
are sold, $1.1782 per share of common stock if the maximum amount of shares are sold without exercise of the over-subscription
option, and $1.3237 per share of common stock if the maximum amount of shares are sold and the over-subscription option is exercised
in full. This represents an immediate increase in pro forma net tangible book value of $0.1028 per share to our existing
shareholders and immediate dilution of $8.3700 per share to new investors purchasing shares in this offering if the minimum number
of shares are sold, an immediate increase in pro forma net tangible book value of $1.1510 per share to our existing shareholders
and immediate dilution of $7.3218 per share to new investors purchasing shares in this offering if the maximum number of
shares are sold without exercise of the over-subscription option, and an immediate increase in pro forma net tangible book value
of $1.2965 per share to our existing shareholders and immediate dilution of $7.1763 per share to new investors
purchasing shares in this offering if the maximum number of shares are sold and the over-subscription option is exercised in full.
The following table illustrates this dilution
on a per share basis to new investors:
|
|
Minimum
|
|
|
Maximum
without Over-Subscription Option
|
|
|
Maximum
with Over-Subscription Option
|
|
Assumed public offering price per unit
|
|
$
|
8.50
|
|
|
$
|
8.50
|
|
|
$
|
8.50
|
|
Historical net tangible book value per common share as of December 31, 2017
|
|
$
|
0.0272
|
|
|
$
|
0.0272
|
|
|
$
|
0.0272
|
|
Pro forma as adjusted net tangible book value per common share as of December 31, 2017
|
|
$
|
0.1300
|
|
|
$
|
1.1782
|
|
|
$
|
1.3237
|
|
Increase in net tangible book value per common share attributable to new investors
|
|
$
|
0.1028
|
|
|
$
|
1.1510
|
|
|
$
|
1.2965
|
|
Dilution per common share to new investors
|
|
$
|
8.3700
|
|
|
$
|
7.3218
|
|
|
$
|
7.1763
|
|
As of December 31, 2017, the total number
of shares of our common stock outstanding after this offering, assuming 7.058,824 shares of our common stock are sold in the offering
(maximum without over-subscription option), is 56,039,328 and excludes the following:
|
●
|
4,054,011 shares
of our common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $1.8324 per share
as of December 31, 2017;
|
|
|
|
|
●
|
423,529 shares of
common stock (487,059 shares of common stock if over-subscription is exercised in full) underlying the warrants to be issued
to the underwriter in connection with this offering; and
|
|
|
|
|
●
|
1,058,824 shares
of common stock issuable upon the exercise of the underwriter’s over-subscription option.
|
If the underwriter’s over-subscription
option is exercised in full, our adjusted pro forma net tangible book value following the offering will be $1.3237 per share,
and the dilution to new investors in the offering will be $7.1763 per share.
A $1.00 increase or decrease in the assumed
public offering price per share would increase or decrease our pro forma as adjusted net tangible book value after this offering
by approximately $0, and increase in dilution per share to new investors by approximately $0.9998 (minimum), $0.9817 (maximum
without over-subscription option) or $0.9768 (maximum with over-subscription option) for an increase of $1.00, or decrease in
dilution per share to new investors by approximately $0.9998 (minimum), $0.9776 (maximum without over-subscription option) or
$0.9717 (maximum with over-subscription option) for a decrease of $1.00, after deducting the underwriting discount and estimated
offering expenses payable by us.
MARKET FOR COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock began trading on the
OTCQB on May 30, 2017 under the symbol “AKOM.” On July 31, 2017, our stock began trading on the OTCQX Best Market.
To date, there has been limited trading for our common stock on the OTC Markets. The following table sets forth, for the periods
indicated, the high and low closing prices of our common stock. These prices reflect inter-dealer prices, without retain mark-up
or commission, and may not represent actual transactions.
|
|
Closing
Prices
(1)
|
|
|
|
High
|
|
|
Low
|
|
|
|
USD
|
|
|
USD
|
|
2017
|
|
|
|
|
|
|
1
st
Quarter
|
|
|
0.20
|
|
|
|
0.20
|
|
2
nd
Quarter
|
|
|
5.50
|
|
|
|
5.50
|
|
3
rd
Quarter
|
|
|
6.00
|
|
|
|
6.00
|
|
4
th
Quarter
|
|
|
6.00
|
|
|
|
6.00
|
|
|
(1)
|
The above table sets forth
the range of high and low closing prices per share of our common stock as reported by
www. otcmarkets.com for the periods indicated.
|
As of March 28, 2018, we had a total of
41,460,097 shares of our common stock outstanding. On March 28, 2018, the closing sales price of our common stock was $7.50 per
share on the OTCQX Best Market. Our stock only recently began trading and it is extremely thinly traded. We cannot guarantee that
an active market in our common stock will develop on the OTCQX Best Market.
After the effective date of the registration
statement relating to this prospectus and following the filing of audited financial statements for our changed fiscal year end
ending March 31, 2018, we plan to file an application to have the shares of common stock offered hereby listed on either the NYSE
or the Nasdaq under the symbol “AKOM.” The Company expects to meet the NYSE and Nasdaq initial listing standards,
including the market value of our publicly held shares, the market value of our listed securities, the number of our publicly
held shares, the number of round lot shareholders, the number of market makers and the bid or closing price of our common stock,
upon a successful completion of this offering, although no assurance can be given that we will successfully complete this offering
or meet those standards and that our listing application will be approved. The market value of our publicly held shares (i.e.,
shares held by non-affiliated persons) already exceeds the $15 million and 1 million share minimum thresholds of both the NYSE
and the Nasdaq, and the market value of all of our listed securities currently meets both the NYSE and NASDAQ minimums of $50
million. We cannot be sure that we will be able to meet the minimum number of round lot shareholders required by the NYSE (400)
or the Nasdaq (300) if we raise only the minimum amount in this offering, and there can be no assurance that we will be able to
meet these minimum shareholder requirements even if we complete this offering having sold the maximum amount. We currently meet
the number of market makers requirements of both exchanges and we expect that we will meet the bid or closing price of our common
stock for both exchanges based on the expected range of pricing of our common stock in this offering. To meet the exchange’s
financial statement seasoning requirements, on March 18, 2018, our board of directors voted to change our fiscal year to March
31 and prepare audited financial statements for the fiscal quarter ended March 31, 2018, which, when combined with our audited
financial statements for the fiscal year ended December 31, 2017, will give us the exchange required audited financial statements
for a full fiscal year following the completion of our reverse acquisition and the filing of our Form 10 information with the
SEC on February 13, 2017. Because we will only be filing our exchange application following the filing with the SEC of our
audited financial statements for the quarter ended March 31, 2018, you may experience a delay between the closing of your purchase
of our common stock in this offering and the listing of those shares on an exchange. Furthermore, if we do not meet the exchange
listing standards, our exchange application will not be approved, and our common stock will not be able to trade on an exchange,
although it will continue to be quoted for trading on the OTCQX.
Number of Holders of Our Shares of
Common Stock
We had 49 record holders of our common
stock as of March 28, 2018. Because brokers and other institutions hold shares on behalf of stockholders, we are unable to estimate
the total number of stockholders represented by these record holders.
Securities Authorized for Issuance
Under Equity Compensation Plans
Equity Compensation Plan Information
On May 5, 2017, we established our 2017
Equity Incentive Plan (the “Plan”). The Plan was approved by our board of directors on May 5, 2017, and an amendment
to increase the number of shares of our common stock available for grant under the Plan was approved by the board of directors
on June 26, 2017. We expect that the Plan will be approved by our stockholders at our annual meeting in 2018. The purpose of the
Plan is to grant stock and options to purchase our common stock to our employees, directors and key consultants. The maximum number
of shares of common stock that may be issued pursuant to awards granted under the Plan, as amended, is 10,000,000 shares. Cancelled
and forfeited stock options and stock awards may again become available for grant under the Plan. There were 4,054,011 shares
available for grant under the Plan as of March 16, 2018; 4,661,308 shares of our common stock are issuable upon the exercise of
options to be issued under the Plan to holders of Aircom options assumed by us as a result of the closing of the reverse acquisition
with Aircom; and options exercisable for 1,265,000 shares of our common stock have been approved by our board of directors for
grants to certain of our officers, directors, employees and service providers.
Equity Compensation Plan and Employee
Benefits
Summary of the 2017 Equity Incentive
Plan
The following summary briefly describes
the principal features of the Plan and is qualified in its entirety by reference to the full text of the Plan.
Administration
. The Plan is administered
by our Compensation Committee. Our Compensation Committee has the authority to select the eligible participants to whom awards
will be granted, to determine the types of awards and the number of shares covered and to set the terms, conditions and provisions
of such awards, to cancel or suspend awards under certain conditions, and to accelerate the exercisability of awards. Our Compensation
Committee is authorized to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan,
to determine the terms of agreements entered into with recipients under the Plan, and to make all other determinations that may
be necessary or advisable for the administration of the Plan.
Eligibility
. All employees, directors
and individuals providing services to our company or its subsidiaries are eligible to participate in the Plan.
Shares Subject to Plan
. The number
of shares of common stock that is available for grant of awards under the Plan, as amended, is 10,000,000 shares.
Stock Option and SAR Grants.
The
exercise price per share of common stock purchasable under any stock option or stock appreciation right, or SAR, will be determined
by our Compensation Committee, but cannot in any event be less than 100% of the fair market value of our common stock on the date
the option is granted. Our Compensation Committee will determine the term of each stock option or SAR (subject to a maximum of
10 years) and each stock option or SAR will be exercisable pursuant to a vesting schedule determined by our Compensation Committee.
The grants and the terms of incentive stock options, or ISOs, shall be restricted to the extent required for qualification as
ISOs by the Internal Revenue Code, or the Code. Subject to approval of our Compensation Committee, stock options or SARs may be
exercised by payment of the exercise price in cash, shares of our common stock, which have been held for at least six months,
or pursuant to a “cashless exercise” through a broker-dealer under an arrangement approved by us. We may require the
grantee to pay to us any applicable withholding taxes that we are required to withhold with respect to the grant or exercise of
any award. The withholding tax may be paid in cash or, subject to applicable law, our Compensation Committee may permit the grantee
to satisfy such obligations by the withholding or delivery of shares of our common stock. We may withhold from any shares of our
common stock issuable pursuant to a stock option or SAR or from any cash amounts otherwise due from us to the recipient of the
award an amount equal to such taxes.
Stock Grants.
Shares may be sold
or awarded for consideration and with or without restriction as determined by the Compensation Committee, including cash, full-recourse
promissory notes, as well as past and future services. Any award of shares will be subject to the vesting schedule, if any, determined
by the Compensation Committee. In general, holders of shares sold or awarded under the Plan will have the same voting, dividend
and other rights as our other stockholders. As a condition to the purchase of shares under the Plan, the purchaser will make such
arrangements as our Compensation Committee may require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with such purchase.
Adjustments
. In the event of any
change affecting the shares of our common stock by reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, combination or exchange of shares or other similar corporate change, or any distribution to stockholders other than
cash dividends, our board of directors will make such substitution or adjustment in the aggregate number of shares that may be
distributed under the Plan and in the number and option price (or exercise or purchase price, if applicable) as it deems to be
appropriate in order to maintain the purpose of the original grant.
Termination of Service.
If a participant’s
service to our company terminates on account of death or disability, then the participant’s unexercised options, if exercisable
immediately before the participant’s death, disability or retirement, may be exercised in whole or in part, on the earlier
of the date on which such stock option would otherwise expire or one year after the event. If a participant’s service to
us terminates for any other reason, then the participant’s unexercised options, to the extent exercisable immediately before
such termination, will remain exercisable, and may be exercised in whole or in part, for a period ending on the earlier of the
date on which such stock option would otherwise expire or three months after such termination of service.
Amendment and Termination.
Our
board of directors may, at any time, alter, amend, suspend, discontinue, or terminate the Plan; provided that such action shall
not adversely affect the right of grantees to stock awards or stock options previously granted and no amendment, without the approval
of our stockholders, shall increase the maximum number of shares which may be awarded under the Plan in the aggregate, materially
increase the benefits accruing to grantees under the Plan, change the class of employees eligible to receive options under the
Plan, or materially modify the eligibility requirements for participation in the Plan.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements
and related notes appearing elsewhere in this prospectus. Our discussion includes forward-looking statements based upon current
expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results
and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number
of factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.
Overview
We are a full-service provider of IFEC
solutions. With advanced technologies and a unique business model, we plan to provide airline passengers with a true broadband
in-flight experience that encompasses a wide range of service options. Such options will include Wi-Fi, cellular networks, movies,
gaming, live TV, and music. We expect to offer these core services, which we are currently still developing, through both built-in
in-flight entertainment systems, such as a seatback display, as well as on passengers’ personal devices. We also expect
to provide content management services and e-commerce solutions.
We plan to partner with airlines and offer
airline passengers free IFEC services. We expect to generate revenues through advertising and in-flight transactions.
Our total sales were $0, $0 and $6,128,900
for the fiscal years ended December 31, 2017, 2016 and 2015, respectively. Our total sales of $6,128,900 in 2015 were non-recurring
sales of equipment to related parties. Our net loss for the fiscal year ended December 31, 2017 and 2016 were $7,132,464 and $3,176,464,
respectively, as compared to a net income of $2,670,414 for the fiscal year ended December 31, 2015.
Principal Factors Affecting Financial
Performance
We believe that our operating and business
performance is driven by various factors that affect the commercial airline industry, including trends affecting the travel industry
and trends affecting the customer bases that we target, as well as factors that affect wireless Internet service providers and
general macroeconomic factors. Key factors that may affect our future performance include:
|
●
|
our ability to enter
into and maintain long-term business arrangements with airline partners, which depends on numerous factors including the real
or perceived availability, quality and price of our services and product offerings as compared to those offered by our competitors;
|
|
●
|
the extent of the
adoption of our products and services by airline partners and customers;
|
|
●
|
costs associated
with implementing, and our ability to implement on a timely basis, our technology, upgrades and installation technologies;
|
|
●
|
costs associated
with and our ability to execute our expansion, including modification to our network to accommodate satellite technology,
development and implementation of new satellite-based technologies, the availability of satellite capacity, costs of satellite
capacity to which we may have to commit well in advance, and compliance with regulations;
|
|
●
|
costs associated
with managing a rapidly growing company;
|
|
●
|
the number of aircraft
in service in our markets, including consolidation of the airline industry or changes in fleet size by one or more of our
commercial airline partners;
|
|
●
|
the economic environment
and other trends that affect both business and leisure travel;
|
|
●
|
continued demand
for connectivity and proliferation of Wi-Fi enabled devices, including smartphones, tablets and laptops;
|
|
●
|
our ability to obtain
required telecommunications, aviation and other licenses and approvals necessary for our operations; and
|
|
●
|
changes in laws,
regulations and interpretations affecting telecommunications services and aviation, including, in particular, changes that
impact the design of our equipment and our ability to obtain required certifications for our equipment.
|
Critical Accounting Policies
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States requires our management to make assumptions,
estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments
and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial
statements. These accounting policies are important for an understanding of our financial condition and results of operation.
Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations
and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly
sensitive because of their significance to financial statements and because of the possibility that future events affecting the
estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies
involve the most significant estimates and judgments used in the preparation of our financial statements:
Revenue Recognition
. We
recognize sales when the earning process is completed, as evidenced by an arrangement with the customer, transfer of title and
acceptance, if applicable, has occurred, as well as the price is fixed or determinable, and collection is reasonably assured.
Sales are recorded net of returns, discounts and allowances.
Inventories
. Inventories
are recorded at the lower of weighted-average cost or net realizable value. We assess the impact of changing technology on our
inventory on hand and write off inventories that are considered obsolete. Estimated losses on scrap and slow-moving items are
recognized in the allowance for losses.
Research and Development Costs
.
Research and development costs are charged to operating expenses as incurred. For the years ended December 31, 2017, 2016 and
2015, we incurred approximately $366,000, $1,597,000 and $25,000 of research and development costs, respectively.
Property and Equipment.
Property and equipment are stated at cost less accumulated depreciation. When value impairment is determined, the related assets
are stated at the lower of fair value or book value. Significant additions, renewals and betterments are capitalized. Maintenance
and repairs are expensed as incurred. Depreciation is computed by using the straight-line method and double declining method over
the following estimated service lives: computer equipment - 3 to 5 years, furniture and fixtures - 5 years and satellite equipment
– 5 years. Construction costs for on-flight entertainment equipment not yet in service are recorded under construction in
progress. Upon sale or disposal of property and equipment, the related cost and accumulated depreciation are removed from the
corresponding accounts, with any gain or loss credited or charged to income in the period of sale or disposal. We review the carrying
amount of property and equipment for impairment when events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. We determined that there was no impairment loss for the years ended December 31, 2017, 2016 and
2015.
Goodwill and Purchased Intangible
Assets
. Goodwill represents the amount by which the total purchase price paid exceeded the estimated fair value of net
assets acquired from acquisition of subsidiaries. We test goodwill for impairment on an annual basis, or more often if events
or circumstances indicate that there may be impairment. Purchased intangible assets with finite life are amortized on the straight-line
basis over the estimated useful lives of respective assets. Purchased intangible assets with indefinite life are evaluated for
impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. As
of December 31, 2017, 2016 and 2015 purchased intangible asset consists of satellite system software and is amortized over 10
years.
Fair Value of Financial Instruments
.
We utilize the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization
of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement
of fair value. The three levels of the hierarchy consist of the following:
Level 1 - Inputs to the valuation
methodology are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access
at the measurement date.
Level 2 - Inputs to the valuation
methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active
or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the
instrument.
Level 3 - Inputs to the valuation
methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing
the asset or liability at the measurement date, including assumptions.
The carrying amounts of our cash, accounts
receivable, other receivable, short-term loans, accounts payable, and other payable approximated their fair value due to the short-term
nature of these financial instruments.
Foreign Currency Translation.
If
a foreign subsidiary’s functional currency is the local currency, translation adjustments will result from the process of
translating the subsidiary’s financial statements into the reporting currency of our company. Such adjustments are accumulated
and reported under other comprehensive income (loss) as a separate component of stockholder’s equity.
Emerging Growth Company
We qualify as an “emerging growth
company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure
requirements. For so long as we are an emerging growth company, we will not be required to:
|
●
|
have an auditor
report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
|
|
|
|
|
●
|
comply with any
requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or
a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e.,
an auditor discussion and analysis);
|
|
|
|
|
●
|
submit certain executive
compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and
|
|
|
|
|
●
|
disclose certain
executive compensation related items such as the correlation between executive compensation and performance and comparisons
of the CEO’s compensation to median employee compensation.
|
In addition, Section 107 of the JOBS Act
also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B)
of the Securities Act for complying with new or revised accounting standards.
In other words, an emerging growth company
can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have
elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable
to those of companies that comply with such new or revised accounting standards.
We will remain an “emerging growth
company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual
gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2
under the Exchange Act, which would occur if the market value of our shares of common stock that are held by non-affiliates exceeds
$700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have
issued more than $1 billion in non-convertible debt during the preceding three year period.
Recent Accounting Pronouncements
Financial Instruments
In January 2016, the FASB issued ASU No.
2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities,” or ASU 2016-01, which updates certain aspects of recognition, measurement, presentation and disclosure of
financial instruments. ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years. We are currently evaluating the impact of adopting ASU 2016-01 on our consolidated financial statements.
In June 2016, the FASB issued ASU No.
2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,”
or ASU 2016-13, which modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 will be
effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently
evaluating the impact of adopting ASU 2016-13 on our consolidated financial statements.
Intangibles
In January 2017, the FASB issued ASU No.
2017-04, “Intangibles - Goodwill and Other” (Topic 350): Simplifying the Test for Goodwill Impairment, which goodwill
shall be tested at least annually for impairment at a level of reporting referred to as a reporting unit. ASU 2017-04 will be
effective for annual periods beginning after December 15, 2019. The Company is currently evaluating the impact of adopting ASU
2017-04 on its consolidated financial statements.
Leases
In February 2016, the FASB issued ASU
No. 2016-02, “Leases” (Topic 842), or ASU 2016-02, which modifies lease accounting for both lessees and lessors to
increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified
as operating leases under previous accounting standards and disclosing key information about leasing arrangements. ASU 2016-02
will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and
early adoption is permitted. We are currently evaluating the timing of its adoption and the impact of adopting ASU 2016-02 on
our consolidated financial statements.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers” (Topic 606), or ASU 2014-09, which amends the existing accounting standards
for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects
to be entitled when products are transferred to customers. ASU 2014-09 will be effective for annual periods beginning after December
15, 2017, and interim periods within that reporting period.
Subsequently, the FASB issued the following
standards related to ASU 2014- 09: ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations,” or ASU 2016-08; ASU No. 2016-10, “Revenue from Contracts with Customers” (Topic 606):
Identifying “Performance Obligations and Licensing,” or ASU 2016-10; and ASU No. 2016-12, “Revenue from Contracts
with Customers” (Topic 606): “Narrow-Scope Improvements and Practical Expedients,” or ASU 2016-12. We must adopt
ASU 2016- 08, ASU 2016-10 and ASU 2016-12 with ASU 2014-09 (collectively, the “new revenue standards”).
The new revenue standards may be applied
retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption.
We currently expect to adopt the new revenue standards in our first quarter of 2018 utilizing either a retrospective basic or
modified retrospective basic method. We are currently evaluating the impact of adopting the new revenue standards on our consolidated
financial statements.
Income Taxes
In October 2016, FASB issued ASU 2016-16,
“Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory” (“ASU 2016-16”), which
requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the
transfer occurs. ASU 2016-06 will be effective for annual reporting periods beginning after December 15, 2017 and for the Company
in its first quarter of 2018. The Company is currently evaluating the impact of adopting ASU 2016-16 on its consolidated financial
statements.
Results of Operations
Comparison of the Years Ended December
31, 2017, 2016 and 2015
The following table sets forth key
components of our results of operations during the years ended December 31, 2017, 2016 and 2015, both in dollars and as a percentage
of our sales.
|
|
For
the Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Amount
|
|
|
%
of Sales
|
|
|
Amount
|
|
|
%
of Sales
|
|
|
Amount
|
|
|
%
of Sales
|
|
Sales
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
6,128,900
|
|
|
|
100.0
|
%
|
Cost
of sales
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,337,905
|
|
|
|
21.8
|
%
|
Operating
expenses
|
|
|
7,147,597
|
|
|
|
-
|
|
|
|
3,970,105
|
|
|
|
-
|
|
|
|
1,235,796
|
|
|
|
20.2
|
%
|
Income
(loss) from operations
|
|
|
(7,147,597
|
)
|
|
|
-
|
|
|
|
(3,970,105
|
)
|
|
|
-
|
|
|
|
3,555,199
|
|
|
|
58.0
|
%
|
Net
non-operating income (expense)
|
|
|
23,652
|
|
|
|
-
|
|
|
|
(89,559
|
)
|
|
|
-
|
|
|
|
15
|
|
|
|
0.0
|
%
|
Income
(loss) before income taxes
|
|
|
(7,123,945
|
)
|
|
|
-
|
|
|
|
(4,059,664
|
)
|
|
|
-
|
|
|
|
3,555,214
|
|
|
|
58.0
|
%
|
Income
tax expense (benefit)
|
|
|
8,519
|
|
|
|
-
|
|
|
|
(883,200
|
)
|
|
|
-
|
|
|
|
884,800
|
|
|
|
14.4
|
%
|
Net
income (loss)
|
|
|
(7,132,464
|
)
|
|
|
-
|
|
|
|
(3,176,464
|
)
|
|
|
-
|
|
|
|
2,670,414
|
|
|
|
43.6
|
%
|
Other
comprehensive income (loss)
|
|
|
(3,454
|
)
|
|
|
-
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
comprehensive income (loss)
|
|
$
|
(7,135,918
|
)
|
|
|
-
|
|
|
$
|
(3,176,474
|
)
|
|
|
-
|
|
|
$
|
2,670,414
|
|
|
|
43.6
|
%
|
Sales
. Our sales were $0
for each of the years ended December 31, 2017 and 2016, as compared to the $6,128,900 for the same period in 2015. The decrease
is because we are still developing our core business in on-board entertainment and connectivity and did not generate any recurring
sales in 2017 and 2016, while the sales of $6,128,900 in 2015 were from a non-recurring sale of equipment to related parties.
Cost of sales
. Our cost
of sales includes the direct costs of our raw materials and component parts, as well as the cost of labor and overhead. Our cost
of sales was $0 for both of the years ended December 31, 2017 and 2016 as we did not have any sales during the period, compared
to the $1,337,905 for the same period in 2015 as a result of the non-recurring sales of equipment to related parties.
Operating expenses
. Our
operating expenses consist primarily of compensation and benefits, professional advisor fees, cost of promotion, business development,
business travel, transportation costs, and other expenses incurred in connection with general operations. Our operating expenses
increased by $3,177,492, or 80.0%, to $7,147,597 for the year ended December 31, 2017, from $3,970,105 for the year ended December
31, 2016. Such increase was mainly due to the increase in stock-based compensation, satellite service fees, investor relations
and securities registration expenses, payroll and related expenses, legal expense, accounting fees, travel expenses and consulting
fees of $1,729,446, $382,281, $671,058, $578,903, $306,694, $457,736, $138,965 and $269,453, respectively, which was offset by
the decrease in R&D and outsourcing expenses of $1,231,202 and $144,623, respectively. Our operating expenses increased by
$2,734,309, or 221.3%, to $3,970,105 for the year ended December 31, 2016, from $1,235,796 for the year ended December 31, 2015.
Such increase was mainly due to the increase in R&D expenses, amortization expenses, outside services, payroll expenses and
consulting fees, by the amount of $1,572,184, $412,500, $290,000, $531,381 and $125,399, respectively, offset by the decrease
in marketing expenses by the amount of $169,081. The increase in payroll expenses for the year ended December 31, 2016 is due
to all payroll expenses in 2016 being classified as operating expenses while a portion of the payroll expenses, $652,800, was
classified as cost of sales in 2015.
Net Non-Operating income (expense)
.
We had $23,652 in net non-operating income for the year ended December 31, 2017 and $89,559 in net non-operating expense for the
years ended December 31, 2016, as compared to the net non-operating income of $15 for the year ended December 31, 2015. Net non-operating
income for the year ended December 31, 2017 primarily represents the cancellation of debt from a related party of $26,647, while
the $89,559 net non-operating expense in the year ended December 31, 2016 represents interest expense.
Income (loss) before income taxes
.
Our loss before income taxes is $7,123,945 for the year ended December 31, 2017 as compared to the loss before income taxes for
the year ended December 31, 2016 of $4,059,664, an increase of $3,064,281. Our loss before income taxes is $4,059,664 for the
year ended December 31, 2016 as compared to the income before income taxes of $3,555,214 for the year ended December 31, 2015,
increased by $7,614,878, as a result of the factors described above.
Income tax expense (benefit)
.
Income tax expense increased to $8,519 for the year ended December 31, 2017, from an income tax benefit of $883,200 for the year
ended December 31, 2016. The income tax expense for 2017 was mainly due to California franchise tax and foreign subsidiary’s
income tax expenses. Income tax benefit increased to $883,200 for the year ended December 31, 2016, from the income taxes expense
of $884,800 for the year ended December 31, 2015. The income tax benefit for the year ended December 31, 2016 was due to the operating
loss reducing the taxable income carried over from December 31, 2015.
Total comprehensive (income) loss
.
As a result of the cumulative effect of the factors described above, our total comprehensive loss increased by $3,959,444 to $7,135,918
for the year ended December 31, 2017, from $3,176,474 for the year ended December 31, 2016 and our total loss increased by $5,846,888
to $3,176,474 for the year ended December 31, 2016 from a net income of $2,670,414 for the year ended December 31, 2015.
Liquidity and Capital Resources
As of December 31, 2017, we had cash and
cash equivalents of $21,504. To date, we have financed our operations primarily through non-recurring sales of equipment in 2015
to related parties, cash proceeds from financing activities, short-term borrowings and equity contributions by our stockholders.
The following table provides detailed
information about our net cash flow for all financial statement periods presented in this report:
Cash Flow
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net cash provided by (used for) operating
activities
|
|
$
|
(6,001,485
|
)
|
|
$
|
(1,225,102
|
)
|
|
$
|
3,094,442
|
|
Net cash used for investing activity
|
|
|
(273,015
|
)
|
|
|
(4,006,285
|
)
|
|
|
(5,728,508
|
)
|
Net cash provided by financing
activity
|
|
|
5,984,941
|
|
|
|
5,502,422
|
|
|
|
864,452
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(289,559
|
)
|
|
|
271,035
|
|
|
|
(1,769,614
|
)
|
Cash from acquired subsidiaries
|
|
|
2,354
|
|
|
|
21,650
|
|
|
|
-
|
|
Cash at beginning of period
|
|
|
312,173
|
|
|
|
19,498
|
|
|
|
1,789,112
|
|
Foreign currency translation
effect on cash
|
|
|
(3,464
|
)
|
|
|
(10
|
)
|
|
|
-
|
|
Cash at end of period
|
|
$
|
21,504
|
|
|
$
|
312,173
|
|
|
$
|
19,498
|
|
Operating Activities
Net cash used for operating activities
was $6,001,485 for the year ended December 31, 2017, as compared to $1,225,102 for the year ended December 31, 2016. The
increase in net cash used for operating activities was mainly due to net operating loss, increase in prepaid expenses, and decrease
in other payable related parties of $7,132,464, $521,949 and $2,373,180, respectively, offset by the decrease in other receivable-related
party and deposits-others, increase in accrued expenses and other payable of $162,335, $660,132, $506,822 and $392,299, respectively.
Net cash used for operating activities was $1,225,102 for the year ended December 31, 2016, as compared to the cash provided
by operating activities of $3,094,442 for the year ended December 31, 2015. The increase in net cash used for operating activities
for the year ended December 31, 2016 was mainly due to net operating loss, increase in deposits-others, decrease in other payable-related
party and other payable-others of $3,176,464, $382,534, $1,638,890 and $133,759, respectively, offset by the increase in accounts
receivable-related party, prepaid expenses and other receivable-related party of $3,478,900, $116,327 and $166,180, respectively.
Investing Activities
Net cash used in investing activities
for the years ended December 31, 2017, 2016 and 2015 was $273,015, $4,006,285 and $5,728,508, respectively. The net cash
used in investing activities mainly related to the purchase of property and equipment in the amount of $273,015 in 2017 and the
purchase of property and equipment and acquisition of goodwill in the amount of $3,686,597 and $319,688, respectively, in 2016,
and acquisitions of intangible assets of $4,950,000 in 2015.
Financing Activities
Net cash provided by financing activities
for the years ended December 31, 2017, 2016 and 2015 was $5,984,941, $5,502,422 and $864,452, respectively. These net cash amounts
provided by financing activities were mainly attributable to proceeds from the issuance of our common stock and subscribed
capital in the amounts of $5,914,941, $5,463,038 and $864,452 during the years ended December 31, 2017, 2016 and 2015, respectively.
Currently available working capital will
not be adequate to sustain our operations at our current levels for the next twelve months. We expect to satisfy our working capital
requirements over the next twelve months through the sale of equity or debt securities. However, we do not have any commitment
from any third-party to invest in our company or otherwise acquire any of our equity or debt securities. Furthermore, even if
we successfully raise sufficient capital to satisfy our needs over the next twelve months, in the future, we will require additional
cash resources due to changed business conditions, implementation of our strategy to expand our business or other investments
or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements,
we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity
securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service
obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may
not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable
to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.
Capital Expenditures
Our operations continue to require significant
capital expenditures primarily for technology development, equipment and capacity expansion. Capital expenditures are associated
with the supply of airborne equipment to our prospective airline partners, which correlates directly to the roll out and/or upgrade
of service to our prospective airline partners’ fleets. Capital spending is also associated with the expansion of our network,
ground stations and data centers and includes design, permitting, network equipment and installation costs.
Capital expenditures for the years ended
December 31, 2017, 2016 and 2015 were $639,062, $5,603,534 and $5,053,573 respectively.
We anticipate an increase in capital spending
in fiscal year 2018 and estimate that capital expenditures will range from $6 million to $60 million as we begin airborne equipment
installations and continue to execute our expansion strategy.
Inflation
Inflation and changing prices have not
had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business
in the foreseeable future. However, our management will closely monitor price changes in our industry and continually maintain
effective cost control in operations.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor
in our securities.
Seasonality
Our operating results and operating cash
flows historically have not been subject to significant seasonal variations. This pattern may change, however, as a result of
new market opportunities or new product introductions.
BUSINESS
Business Overview
With advanced technologies and a unique
business model, we, as a service provider of in-flight entertainment and connectivity (or “IFEC”) solutions, intend
to provide airline passengers with a broadband in-flight experience that encompasses a wide range of service options. Such options
include Wi-Fi, cellular, movies, gaming, live TV, and music. We plan to offer these core services, which we are currently still
developing, through both built-in in-flight entertainment systems, such as a seat-back display, as well as on passengers’
personal devices. We also expect to provide content management services and e-commerce solutions.
We plan to partner with airlines and offer
airline passengers free IFEC services. We expect to generate revenues through advertising and in-flight transactions. We believe
that this is an innovative approach that differentiates us from existing market players.
Our Corporate Structure
We are a holding company. All of our business
operations are conducted through our several operating subsidiaries. The chart below presents our corporate structure as of the
date of this prospectus:
Aircom Pacific, Inc. is our wholly owned
operating subsidiary through which all of our operational and core business activities are run.
On October 31, 2016, Aircom acquired Aircom
HK for $100,000. Aircom HK is a Hong Kong limited company formed on October 3, 2008 as Yanwei Information Technology Limited.
Aircom HK changed its name to Dadny Inc Limited on July 22, 2015 and changed its name again to Aircom Pacific Inc. Limited on
July 22, 2015. Aircom HK is in charge of all of Aircom’s business and operations in Hong Kong and China. Aircom HK is applying
for, and will be the holder of VSTC issued by the HKCAD. Presently, Aircom HK’s primary function is business development,
both with respect to airlines as well as content providers and advertising partners based in Hong Kong and China. It is also actively
seeking strategic partnerships in those areas, through which Aircom may leverage its product offerings to provide enhanced services
to prospective customers. Aircom also plans to provide local support to Hong Kong-based airlines via Aircom HK and Aircom HK owned
teleports located in Hong Kong.
On December 12, 2016, Aircom acquired
Aircom Japan for $600,000. Aircom Japan was formed under the laws of Japan on August 29, 2011 as Dadny (Japan) Inc. and changed
its name to Aircom Japan, Inc. on July 1, 2016. Aircom Japan is responsible for Aircom’s business development efforts and
general operations located within Japan. Aircom Japan is applying for, and will be the holder of, a Satellite Communication Blanket
License, which is necessary for Aircom to provide services within Japan. Aircom Japan will also provide local support to airlines
operating within the territory of Japan. We do not expect to be in a position to successfully launch our service offerings in
Japan until sometime in 2019.
Aircom Seychelles was formed by Aircom
under the laws of Seychelles on December 15, 2009 as Gulach Ltd. and changed its name to Aircom Pacific Ltd. on August 19, 2014.
Aircom Seychelles was formed to facilitate Aircom’s global corporate structure for both business operations and tax planning.
Presently, Aircom Seychelles has no operations. Aircom is working with corporate and tax advisers in finalizing its global corporate
structure and has not yet concluded its final plan of organization.
Aircom Taiwan, which became a wholly owned
subsidiary of Aircom in December 2017, was organized under the laws of Taiwan on June 29, 2016. Aircom Taiwan is responsible for
Aircom’s business development efforts and general operations within Taiwan. We are currently planning to locate the site
of our first ground station in Taiwan and we expect that if we raise sufficient funds to move forward with this project (although
that cannot be guaranteed), Aircom Taiwan will play a significant role in building and operating that ground station.
Our principal executive offices are located
at 923 Incline Way #39, Incline Village, NV 89451. The telephone number at our principal executive office is (877) 742-3094.
Our Industry
According to William Blair’s equity
report titled “The Internet of Everything,” dated January 30, 2017, commercial in-flight connectivity, or IFC, is
a rapidly growing $6 billion market. Global industry penetration of commercial aircraft installed with IFC has grown from less
than 1% in 2008 to 25% in 2016, with the expectation of 60%-plus by 2022. Industry growth should occur from not only increased
penetration, but also expected increases in the average revenue generated per aircraft.
The global IFEC market is expected to
experience high growth due to factors such as aircraft expansion, increasing passenger rates, rising penetration rates, and technological
advances. The global IFEC market revenue was forecasted to grow at a compound annual growth rate of 49.7% (2013 Global Industry
Analyst Report). The Asia-Pacific region is expected to experience more rapid growth because of the demand from a huge population.
Boeing estimates that commercial aircraft will increase from 22,510 planes in 2015 to more than 45,000 in 2035, according to its
2016 market report.
Our Business Model
We believe that our business model sets
us apart from our competitors. We combine cutting-edge connectivity technology with a unique content-driven approach. Traditionally,
providers of in-flight connectivity focus primarily on the profit margin derived from the sale of hardware to airlines and of
bandwidth to passengers. Both airlines and passengers have to “pay to play,” which results in low participation and
usage rates. We break away from this model and set a new trend with our business model, under which neither airlines nor passengers
need to pay for products or services. Furthermore, our business plan will provide our future airline partners with an opportunity
to participate in our revenue sharing model. Taken together, this novel approach creates incentive for the airlines to work with
us while driving passenger usage rates to levels management believes could reach 90% or more, considering the fact that many passengers
now carry more than one smart device.
Our main source of revenue is expected
to be derived from the content channeled through our network. In other words, we plan to use connectivity as a tool rather than
as a commodity for sale, which we believe will allow us to achieve a greater return. By providing free connectivity and a large
volume of content, we believe that we will generate a multiplying effect that will result in a value that exceeds the “sum
of its parts.” Through our extended products, continuously expanding content network, and integrated service, we expect
to deliver a total end-to-end solution for our customers, along with uninterrupted professional and social life to passengers
during air travel.
We expect that our business will generate
revenue primarily through revenue sharing with select partners. Our revenue partners include Internet companies, content providers,
advertisers, telecom service providers, e-commerce, and premium sponsors. In addition, we expect to generate income from selling
premium access passes to frequent flyers which would enable the holders to access our network with less restrictions and fewer
interruptions from advertisement.
We expect to launch our business offerings
in 2018, initially in China or Southeast Asia. We may expand our operations to other international markets if we determine
that we can compete in such markets.
Our IFEC Solutions
We plan to provide airline passengers
with a broadband in-flight experience that encompasses a wide range of service options. Such options include Wi-Fi, cellular,
movies, gaming, live TV, and music. We plan to offer our services through both built-in in-flight entertainment systems, such
as a seatback display, as well as on passengers’ personal devices. We also plan to provide related content management services
and on-board e-commerce solutions.
Our Connectivity Solutions
We expect to bring connectivity on-board
aircraft with communication satellites. As depicted in the diagram below, aircraft equipped with connectivity instruments can
communicate with satellites via an airborne antenna. The satellite then relays the information to a ground station, which is equipped
with a high-power satellite dish and is connected to the internet through our proprietary ground system.
Satellites
can communicate on different microwave frequency bands. The higher the frequency, the faster the rate at which data transmits.
However, higher frequency waves are more susceptible to interference from the environment, such as rain fade. Most in-flight connectivity
systems currently rely on the Ku-band for communication, though many players in the market are working to provide higher bandwidth
and faster transmitting rates using the Ka-band. However, there are few Ka-enabled satellites, which limits the coverage area.
We are developing a hybrid Ka/Ku satellite communication system that enables a high throughput where Ka-band coverage is available
and offers global coverage where it is not. Our policy engine will make near real-time decisions based on best available bandwidth
to choose between Ka and Ku-bands. In an area where Ka and Ku-band coverage overlaps, our airborne system can use both Ka and
Ku-band bandwidth or choose the best option based on capacity, cost, and loading. It can also roam seamlessly between Ka and Ku-band
satellites when the aircraft is moving in to or out of the Ka-band coverage area.
Our dual band system architecture brings
our airline customers and their passengers the benefits of both Ka and Ku-band satellite technology. The Ka-band increases data
throughput, while the Ku-band offers reliable service outside of the Ka-band coverage area or when Ka-band is not available due
to weather or other interference.
In July 2015, we entered into a digital
transmission service agreement with Asia Satellite Telecommunications Company Limited, or AsiaSat, for use of its AsiaSat 7 and
8 satellites, which provide access to both Ku and Ka-bands in China and Southeast Asia, for the provision of telecommunication
services, including internet service. This agreement runs for a period of three years from its date of commencement, December
31, 2015. We paid AsiaSat a deposit of $775,000, which will be held by AsiaSat as security for our payment obligations and which
AsiaSat may apply towards any defaults in such obligations. We are required to pay AsiaSat an annual service fee of $3,100,000,
on a quarterly basis. The contract was subsequently suspended and both sides reached a settlement with respect to the Agreement
in July 2017. Please also see “Legal Proceedings” below.
In March 2017, we entered into a Master
Service Agreement with SKY Perfect JSAT Corporation for use of its JCSAT-2B/Asia Beam Ku-band satellite telecommunication services,
teleport services and housing services. The agreement’s initial term runs for a period of three years from its commencement
date of April 15, 2017, subject to the receipt of all governmental licenses and approval, and will continue be effective provided
any of the services continues after the initial term. We are required to prepay $285,300 and a security deposit plus applicable
Japanese consumption tax upon commencement date.
We are actively working with other satellite
providers in order to accommodate airlines’ global routes and growing fleets. We are monitoring the satellite industry for
growth in coverage, with recent attention on China Satcom’s plan to launch high-capacity Ka-band and Ka HTS multispot-beam
satellites over the Asia-Pacific region.
We plan to provide airline partners with
the equipment necessary for in-flight connectivity, which is to be installed by the maintenance, repair, and overhaul service
provider, or MRO, selected by the airline. The main components of each installation kit include a radome, one antenna each for
Ka and Ku-band, a modem, servers, and wireless access points, among others. The complete bill of materials encompasses more than
5,000 individual parts and components. All components of the installation kit will require an STC, from the FAA, or its equivalents
in the relevant jurisdiction. For aircraft outside of the FAA’s jurisdiction, an additional Validation of Supplemental Type
Certificate, or VSTC, for the jurisdiction is required. Each aircraft type requires its own STC and VSTC as needed. For example,
a STC for an Airbus A320 would not permit us to install the same equipment onboard a Boeing 737.
On October 15, 2014, our subsidiary, Aircom,
entered into an agreement with dMobile System Co., Ltd. (“dMobile”), a Taiwanese corporation whose Chairman of the
Board is Daniel Shih, our co-founder, a former material beneficial owner of our common stock and the husband of Barbie Shih, one
of our former directors, for the delivery to dMobile of ground station equipment to be resold to Priceplay Taiwan Inc. (“PPTW”),
of which Mr. Shih may be a deemed beneficial owner. According to the terms of this agreement, the purchase price for the initial
system was $10,202,455, which was reduced to $6,980,000 on March 10, 2015. We delivered the initial system to dMobile on October
20, 2015 and the purchase price receivable from dMobile was offset by our payable to dMobile for a certain software purchase and
a portion of the $1,000,000 prepayment dMobile paid towards the ground station equipment purchase price, leaving a balance owed
by Aircom to dMobile of $471,100. In March 2017, due to changes in ground station equipment technology, both parties mutually
agreed to terminate the contracts between them and dMobile agreed to accept 94,220 shares of our common stock in settlement of
the $471,100 balance. For a more detailed discussion of this settlement agreement, see “
Certain Relationships and Related
Party Transactions - Transactions with Affiliates
,” below.
We will work with our hardware providers
to obtain the necessary STCs or VSTCs for individual aircraft types. We will also provide training and technical support to each
airline’s MRO services provider(s) for the installation of our equipment. Such support will also include technical, management,
and operational support, with 24/7 network monitoring of the performance of each aircraft’s equipment.
Our Content Solutions
Traditionally, airlines view in-flight
entertainment content as a budgeted expense for which they have to pay hefty royalties. With our business model and technologies,
we are able to transform in-flight entertainment into a source of revenue for our airline customers. We are teaming up with our
current and future prospective airline customers to provide free onboard Wi-Fi services to passengers, which allows us to maintain
data traffic control, specifically in terms of blocking or placing advertisements as needed and inserting targeted commercials.
Premium Content Sponsorship
Recently, merchants have begun to take
advantage of in-flight connectivity. In May of 2015, Amazon announced its plan to sponsor free video and music streaming for its
Prime Video subscribers onboard JetBlue’s planes. The Amazon and JetBlue partnership is a paradigm of a win-win affiliation
between an Internet powerhouse and a provider of in-flight connectivity. Amazon gained a platform through which it could display
its premium subscription services and expanded its distribution network, while JetBlue generated significant revenue simply by
making its in-flight connectivity available to Amazon.
The Amazon-JetBlue partnership is only
one of many examples whereby an Internet company can vastly increase its competitive edge by gaining access to in-flight connectivity.
We seek to exemplify this type of relationship through collaboration with major Internet companies, such as a search engine company.
We plan to promote the partner’s brand through its in-flight services by channeling all searches to the partner’s
search engine. By designing the user interface around the partnered company, we can present passengers with an on-screen environment
populated by its apps, logos, and colors, providing a powerful marketing tool for the company. We can also enhance recognition
of our sponsors’ brand by creating a list of portals on the in-flight system’s home screen, which leads to each sponsor’s
individual page where passengers can resume their normal entertainment, social, and professional activities.
We are actively negotiating with Internet
content providers to establish premium sponsorships. We have entered into a memorandum of understanding with Yahoo! to provide
bandwidth sponsorship with branding potential.
Live TV
We are negotiating with television providers
along our airline partners’ flight routes to make live TV available through our IFEC system. Airlines can select live TV
channels that are appropriate for each flight route. An Electronic Program Guide channel listing will be available for easy viewing
and selection.
Several revenue sources will be available
for live TV broadcasting, including commercials before and during programs, and banners at the bottom of the screen. Banner advertisements
at the bottom of the screen can be interactive which will generate pay per click, or PPC, or cost per click, or CPC, revenue in
addition to the lower priced cost per thousand impressions, or CPM, revenue. In addition, we could receive sponsorship premiums
from select TV programs, such as pay-per-view and shopping channels.
Social Media and Instant Messaging
We have firewalls in place both on the
ground and in the air. These, in combination with our policy enforcement software, allow us to filter, classify, block, or forward
services in accordance to our service and quality policies. We can control the flow of traffic for each individual application,
enabling us to use a white list model through which social media and instant messaging partners can provide their users with onboard
access by paying an annual fee.
We are in active discussions with Line,
WeChat, WhatsApp, and other social media partners regarding an annual premium fee in exchange for user access to their applications
and services during air travel. The access to other networks may be limited to a single direction or blocked entirely. For example,
we could allow the users of a non-paying instant message service to receive, but not send, instant messages. When a user tries
to respond to a received message, the system would present a pop-up message encouraging the user to urge the service provider
to enter into a relationship with us.
Airlines can select movies, videos, and
other content for their passengers through our content management system. The management system will tailor content suggestions
according to the flight route and destination and automatically upload selected content to an onboard server while the aircraft
is on the ground. This creates a cache that allows in-flight viewing in areas with limited or no satellite bandwidth connectivity.
For premium content, we may maintain a live connection with the providers’ network for accounting and digital rights management
purposes.
Video/Content on Demand
Content that is available to passengers
for free will generate advertising-based revenue through commercials before and during the programming, as well as through banners
advertisements. Passengers can choose to pay for premium content, such as first-run movies where available. For programming of
all types, our partnered advertising agents can integrate appropriate and effective advertisements targeted to the viewer. Prior
to the start of any program, users will be required to view a commercial with a length determined by the duration of the selected
program. Passenger may not skip or close this commercial without closing out of the program. We can place similar advertisements
before games or radio programs and during online duty-free shopping.
Frequent flying passengers will be able
to purchase a premium package to allow access to unlimited movies, games, and other entertainment contents with no layered advertising.
These packages will include day, trip, monthly, and annual based membership.
Search Engine
In this information age, people often
refer to the Internet for information, yet few individuals are aware that every Internet search they perform generates revenue
for the search engine company. Search engine providers, such as Google, Bing, and Yahoo, sell keywords, page ranking in search
results, advertisement placement, and other related services. The revenue generated by a search engine fluctuates in relation
to its volume of activity. We will manage search engines on a white list basis, which means that the in-flight connectivity system
will only permit traffic to and from approved search engines to go through. If a passenger performs a search on a search engine
that is not partnered with us, the search will be redirected to one that is.
We plan to enter into an agreement with
search engine partners to share the revenue generated from passengers’ searches. As discussed under “Premium Content
Sponsorship” above, we may grant exclusivity to a particular search engine provider that is a premium sponsor. Such exclusivity
may be specific to certain airlines or routes.
Internet Advertising Replacement
We have invested millions of dollars in
airborne satellite infrastructure in order to deliver Internet access to passengers. In the Internet traffic, more than 50% of
bandwidth is consumed by advertisements in the data stream. In order to streamline bandwidth usage, our ground system will detect
advertisements from a webpage and replaces them with advertisements from our advertisers or partners. We will work with Internet
advertisers to present advertisements that are relevant to passengers’ interests. This system enables our partners to place
their advertisements accordingly and generate revenue for both parties. These industry-leading advertisers offer destination-specific
commercials and banners, which can be placed in the in-flight entertainment system and in apps and portal on personal devices.
By utilizing these commercial agents to sell ad space on these systems, we plan to cover all marketable areas, expanding sales
opportunities and increasing revenue.
With online advertisement utilizing both
CPM and CPC models, we are able to capitalize on virtually all available ad space and work with any advertising partner.
Online/Streaming Gaming
We will make it possible to stream console-quality
games in the cabin. Through gaming content partnerships, we will be able to offer PlayStation, Xbox, and other console games.
Passengers will be able to play popular games from their personal device or in-flight entertainment system, invite friends to
play over the network, and save their gaming data for continued play on the ground, which require high speed network in order
to play those interactive action games. Our online gaming service will bring our passengers a gaming experience never seen before.
We expect to generate revenue from advertisements, including banners and commercials, and from fees for premium games or sales
of access passes.
Telecommunications Text Messaging
Services
Through strategic partnerships with telecommunication
providers, we will allow passengers to use 4G messaging services while in flight. Our in-flight system will detect whether the
passenger is using a partner carrier’s network and will deliver or block messages to and from a passenger’s mobile
phone accordingly. For those using a non-partner’s network, the system will urge the passenger to request that their service
provider join our network. These passengers can also purchase a premium package to enable the text message service.
Destination-Based Service
With flight route and passenger information,
our partners will be able to offer destination-specific merchandise and services, including hotel and rental car bookings, transportation
arrangements, restaurant reservations, local tours, and ticket purchases. Travel insurance may be offered on the flight. By signing
up with service partners in the region, we will share the transaction-based revenue by a fixed dollar amount or percentage of
the transaction.
In-flight Trading
We have found that in-flight connectivity
allows travelers to make better use of their travel time. With the uninterrupted broadband available onboard, passengers can conduct
business with professionalism and ease. One example of this benefit is that we plan to collaborate with trading partners to offer
financial trading services and charge a processing fee when a passenger conducts a trade in-flight.
Black Box Live
For reasons of flight safety, a flight
recorder, commonly known as a black box, is required on every aircraft over a certain size. The flight recorder records data with
respect to the various status of the flight and stores the data on a magnetic tape or solid-state disk with special coding. After
retrieving the relevant information from the device, an individual can decode the data and learn what the aircraft encountered
during the flight. This makes it possible to determine the potential causes of an accident. When the black box is needed, the
aircraft has likely suffered an accident. A massive impact or explosion accompanies most airplane crashes, thus requiring the
flight recorder to be shockproof and fire resistant. As the majority of aviation accidents happen over an ocean, the flight recorder
must also be waterproof and corrosion-resistant to avoid being damaged by salt water. Despite advancements in flight recorder
design and the continual improvement of the strength of its materials, records show that a large number of flight recorders were
damaged and unreadable following accidents, if not lost altogether. For this reason, effective, real-time storage of in-flight
data is beneficial for deducing the cause of aviation crashes and preventing them from happening again.
With this new product, Black Box Live,
we expect to provide a system of real-time flight information back-up which is aimed at advancing flight safety. Under strict
security measures, this new product will securely stream the flight data and crewmembers’ cockpit voice records to our cloud
for airlines and authorized individuals to access and monitor. Black Box Live is in the early stages of development and, at this
time, we cannot assure you when this product will reach market, if at all.
AirCinema
Our planned AirCinema solution is designed
to transfer passengers’ visual and audio experience. Traditional built-in in-flight entertainment systems, in particular
those in the economic cabin, are confined to very small screen and primitive audio sound. Our planned AirCinema utilizes pico
projector technology to bring supersized screen display onboard airplanes without incurring outrageous costs or adding significant
weight. AirCinema will aim to deliver a screen size of up to 20” in economy seats and even bigger screen in business or
first-class cabins. With such screen sizes, it will be possible for AirCinema to obtain IMAX certification. Moreover, AirCinema
will be capable of providing full HD 3D Cinema experience in-flight. In addition, AirCinema will incorporate a special designed
head rest with embedded speaker arrays that will deliver THX surround sound without headphones. We plan to qualify AirCinema for
a theater license, which would enable us to provide first-run theater only movie titles and sell movie tickets on pay-per-view
basis. Our satellite based connectivity system could stream the movie title from ground to aircraft and simultaneously provide
digital rights management, which is a prerequisite of showing a theater-only movie title. AirCinema will transform airline coach
seating into theater seating and the passengers could enjoy movies with the same look and feel of sitting in a movie theater.
Aircom entered into a development agreement
with Priceplay.com, Inc., or PPUS, a California corporation whose chairman is Daniel Shih, our co-founder, a former material beneficial
owner of our common stock and the husband of our former director, Barbie Shih, for development of airplane passenger seats incorporating
our AirCinema technology which we were to sell to PPUS and the delivery by PPUS to us of two prototype three-seat rows of seats
for economy cabins. In March 2017, PPUS and Aircom mutually agreed to terminate the remainder of this contract due to changes
in related technology and PPUS’ exit from this segment of the IFEC business. We will resume the development of this product
upon the availability of certain new technology and additional funding. We cannot assure you at this time that we will be able
to complete development of this new product offering.
In settlement of the agreement with PPUS,
we agreed to convert PPUS’ remaining prepayments to us of $737,000 into a subscription for 147,400 shares of our common
stock. For a more detailed discussion of this settlement agreement, see “
Certain Relationships and Related Party Transactions
- Transactions with Affiliates
,” below.
Yacht Communications
We have begun to develop new equipment
and services to provide satellite communications to yachts, initially in the East Asia market. Our new yachts service will utilize
the same satellite communication infrastructure we have developed for IFEC. We are currently in the customer demonstration stage
with our yacht satellite communications equipment and services. We cannot be sure at this time that we will be successful developing
or marketing this yacht product offering.
Satellite Ground Stations and Data
Centers
We plan to build a satellite ground station
and a data center in Asia region to support our operations in that region.
A ground station’s main purpose
is to establish telecommunication links with satellites. It houses satellite antennae and other communication equipment.
Satellite antennae must be located within the coverage of the satellites being used. Ground station satellite antennae are
substantial in size, generally between 20 to 30 feet (7 to 9 meters) in diameter. As we expand our operation, we expect
to have multiple dish antennae connecting to various satellites. Due to the strong electromagnetic radiation emitted by
the antennae, a ground station must be located in rural or industrial areas and it requires a substantial setback zone around
the ground station.
Since our IFEC business model will require
collecting and processing large amounts of data, it will be beneficial for us to have access to a high capacity data center for
the storage and processing of big data. Such a data center should be built within the same region of, and close to, the
ground station, because of synergies and technical advantages such as shorter network latency and cost savings in ground links
between the ground station and data center. We expect that building our own satellite ground stations and data centers will, in
the long run, create economic efficiencies and operational independence.
We are actively searching for appropriate
sites for our first ground station and data center in the Asia region. We expect to identify potential sites prior to the
closing of this offering and expect to use a portion of the net proceeds from this offering as down payments to acquire the sites.
Our Contracts with Airline Partners
In June 2016, we entered into a master
agreement with Hong Kong Airlines Limited, a Hong Kong-based airline, or Hong Kong Airlines, to install IFEC systems on-board
their aircraft. Also party to this agreement is Klingon Aerospace Inc., formerly known as LUXE Electric Co., Ltd., a Taiwanese
corporation, or Klingon, our product development partner and value-added reseller in the region where Hong Kong Airlines operates.
Daniel Shih, our co-founder, was Chairman of Klingon from February 2015 to February 2016, and Peter Chiou, our former Chairman,
Chief Executive Officer and President, was Chief Executive Officer and President of Klingon from March 2015 through April 2016,
prior to his joining our company in February 2017.
The implementation of the Hong Kong Airlines
project is conditioned upon VSTC approval from the HKCAD. We and our equipment supplier have submitted the VSTC application to
HKCAD but the application process is presently on hold due to the supplier’s failure to deliver a key component of the IFEC
system. Presently, we do not expect the supplier to be able to delivery such key component. As a result, we are actively seeking
alternative options to implement the Hong Kong Airline project, including developing necessary equipment or components thereof
with other strategic partners. Because we cannot be sure when we will be able to obtain the IFEC equipment for the VSTC approval,
we cannot be sure when we will begin to generate revenues from the agreement with Hong Kong Airlines, if at all.
Until such time as all approvals from
the HKCAD have been received, our agreement with Hong Kong Airlines only expresses the parties’ desires and understandings
and will not create any legal rights, liabilities or responsibilities whatsoever and will not be legally binding on us or Hong
Kong Airlines. There can be no assurance as to when we will receive the required HKCAD approvals.
Additionally, we had expected that our
services would be provided to Hong Kong Airlines through AsiaSat pursuant to the terms of our agreement with AsiaSat. Now that
our agreement with AsiaSat has been terminated, we will have to find a replacement satellite services provider for our future
arrangement with Hong Kong Airlines. We may not be able to find a replacement of AsiaSat on reasonable terms, if at all.
We plan to enter into business agreements
with additional airline partners that will allow our satellite equipment and/or entertainment services to be installed, and our
services provided, on their aircraft. Under these agreements, we expect that the airlines will commit to have our equipment installed
on some or all of the aircraft they operate, and we will commit to provide passenger connectivity and/or entertainment services
on such aircraft and to remit to the airlines a specified percentage of the revenue that we generate. We will have the exclusive
right to provide Internet connectivity services on these aircraft throughout the term of the agreement in contracts with airline
partners. Depending on the contract, installation and maintenance services may be performed by us and/or the airline. These agreements
will also vary as to who pays for installation and maintenance of the equipment.
MOUs and LOI with Our Business Partners
Yahoo MOU
: On January 19,
2016, Aircom entered into a nonbinding memorandum of understanding, which we refer to as the Yahoo MOU, with Yahoo! Hong Kong
Limited, or Yahoo, pursuant to which, the parties intend to collaboratively market and provide their products and services to
commercial airlines in Asia. Through its affiliates, Yahoo provides customers internet related services including software, content,
communications, media and commerce services. According to the Yahoo MOU, Yahoo intends to use our in-flight entertainment and
connectivity system, or IFEC, to provide in-flight services to its customers. By 2018, through co-marketing and co-branding with
Yahoo, we expect to install IFEC on at least 50 aircraft in Asia.
In addition, the parties intend to collaborate
on destination based marketing and develop a revenue-share scheme on the advertising revenue arising from the in-flight services.
We expect that Yahoo will be the exclusive provider of pre-roll video ads on our IFEC in exchange for committed revenue from Yahoo.
The parties further intend to collaborate and develop the necessary interface to support interaction and/or integration between
our backend and each of Yahoo’s websites and Yahoo’s applications. All present and future intellectual property rights
related to IFEC are expected to solely belong to us or the third-party or third parties from whom we obtained the right to use.
The Yahoo MOU has a term of two years unless otherwise modified or terminated by the parties. This MOU expired on January 19,
2018 and we are working with Yahoo! Hong Kong to extend this MOU.
LeTV MOU
: On January 29,
2016, Aircom entered into a nonbinding memorandum of understanding, which we refer to as the LeTV MOU, with LeTV Cloud Computing
Co., Ltd, or LeTV, pursuant to which, the parties intend to collaboratively market and provide their respective products and services
to commercial airlines in Asia. LeTV is a public company in China that provides internet related services including video streaming,
software and content to its customers. According to the LeTV MOU, LeTV intends to use our IFEC to provide in-flight services to
its customers. By 2018, through co-marketing and co-branding with LeTV, we expect to install IFEC on at least 50 aircraft in Asia.
The parties also intend that all present and future intellectual property rights related to IFEC will solely belong to us or the
third-party or third parties from whom we obtained the right to use. The LeTV MOU has a term of two years unless otherwise modified
or terminated by the parties. This MOU expired on January 29, 2018, and the Company is currently negotiating with LeTV to extend
this MOU.
India MOU
: On June 16, 2016,
Aircom entered into a nonbinding memorandum of understanding, which we refer to as the India MOU, with Nelco Limited, or NELCO,
and NELCO’s wholly owned subsidiary, Tatanet Services Limited, or TNSL, pursuant to which, the parties intend to collaboratively
market and provide their products and services to commercial airlines in India. NELCO and TNSL are both Indian companies that
provide satellite communications services in India and its surrounding regions. Under the terms of the India MOU, the parties
intend to jointly market our IFEC and provide in-flight services to commercial airlines in India. The parties expect to apply
respectively for regulatory approvals in India as may be required for the airworthiness certificate. In addition, the parties
intend to collaborate on technical and business assessment to incorporate our IFEC with NELCO’s and TNSL’s services
and contents to the mutually agreed customers. The India MOU has a term of two years unless otherwise modified or terminated by
the parties.
Malta MOU
: On October 28,
2017, Aircom entered into a nonbinding memorandum of understanding, which we refer to as the Malta MOU, with PanAfriqiyah, a company
organized under the laws of Malta, pursuant to which the parties intend to collaboratively market and provide their products and
services to passengers of a Malta-based airline fleet. Under the terms of the Malta MOU, the parties intend to develop, install
and operate in-flight connectivity systems onboard the Malta-based airline fleet and provide related services to its passengers.
Onurair MOU
: On March 1,
2018, Aircom entered into a nonbinding memorandum of understanding, which we refer to as the Onurair MOU, with Onurair Tasimacilik
A.S., a company organized under the laws of Turkey, pursuant to which the parties intend to collaboratively market and provide
their products and services to passengers of the Turkey-based airline fleet. Under the terms of the Onurair MOU, the parties intend
to develop, install and operate in-flight connectivity systems onboard the Turkey-based airline fleet and provide related services
to its passengers.
Global Eagle LOI
: On September
26, 2017, Aircom entered into a nonbinding letter of intent, which we refer to as the Global Eagle LOI, with Global Eagle Entertainment
Inc., or Global Eagle, for the development, installation and operation of certain IFEC services on selected aircraft of Malindo
Airways Sdn. Bhd. Global Eagle and its affiliates are in the business of developing and manufacturing IFEC systems and solutions,
including hardware, software, installation, networks services, content delivery and related services. Malindo Air is a Malaysia-based
airline that operates a network of scheduled regional passenger services throughout Malaysia and to over 40 destinations. According
to the Global Eagle LOI, the parties intend to develop, install and operate an IFEC system to provide onboard Wi-Fi services and
content delivery on 64 aircraft of Malindo Air. The parties plan to collaborate on technical and business assessments to best
combine Global Eagle’s onboard equipment and ground management systems, Global Eagle’s entertainment portal and related
billing and authentication services, and our IFEC system to provide IFEC services to Malindo Air. We are expected to fund the
capital expenditure for this project, including initial nonrecurring engineering, equipment and satellite bandwidth costs while
Global Eagle intends to fund the operational expenditures for this project including network and bandwidth costs. In addition,
until December 31, 2017, we may not directly or indirectly enter into or continue discussions with any party operating in the
business of providing products and services similar to the in-flight entertainment and/or connectivity products offered by Global
Eagle, in each case for the benefit of Malindo Air. This exclusivity restriction does not apply to negotiations and discussions
with respect to the provision of services or products to any persons other than Malindo Air.
Airbus S.A.S. MOU
: On March
7, 2018, Aircom entered into a nonbinding memorandum of understanding, which we refer to as the Airbus MOU, with Airbus S.A.S.,
a company organized under the laws of France, for the development by Airbus of a complete solution relating to the installation
of Aircom’s IFEC system on Airbus single aisle aircraft and the procurement by Airbus of the relevant regulatory certifications.
All of the above MOUs, and the Global
Eagle LOI are nonbinding and as a result, they only express the desires and understandings between the parties and do not create
any legally binding rights, obligations or contracts except for certain customary provisions such as exclusivity, costs and expenses,
confidentiality and governing law. Any binding obligation to proceed with the transactions contemplated by the MOUs and the Global
Eagle LOI would need to be included in a definitive agreement that is subject to negotiations of the parties, approvals by the
board of directors of respective parties and in certain instances, approvals from regulatory authorities. There can be no assurance
that we will be able to enter into such definitive agreements or receive the required governmental approvals. If for whatever
reason the transactions contemplated by the MOUs and the Global Eagle LOI do not proceed, our results of operations and financial
condition could be materially adversely affected.
Product Development, Manufacturing,
Installation and Maintenance
On March 9, 2015, we entered into a 10-year
purchase agreement with Klingon, pursuant to which we agreed to sell our in-flight connectivity systems to Klingon for joint development
and resale to Hong Kong-based airlines under the brand name Aircom4U. In accordance with the terms of this agreement, Klingon
agreed to purchase from us an initial order of onboard equipment comprising an onboard system for a purchase price of $909,000,
with payments to be made in accordance with a specific milestones schedule. To date, we have received $762,000 from Klingon in
milestone payments towards the equipment purchase price.
Klingon may, at its option, purchase additional
onboard system packages in connection with the marketing of the Aircom4U business. In furtherance of this arrangement, Klingon
is a party to our agreement with Hong Kong Airlines. We expect Klingon to purchase additional onboard systems for resale to Hong
Kong Airlines once our VSTC is approved by the HKCAD, although we can give no assurance as to when this will take place, if at
all.
Because of the delay by our onboard system
equipment supplier for the approval of the VSTC from the HKCAD, we have not been able to deliver to Klingon a ready for sale,
certified onboard system equipment package. Instead, we have delivered to Klingon a development kit of the ordered equipment,
which is the same as the finished product but for the lack of HKCAD certification. Although there is no specified deadline in
the agreement with Klingon for delivering the certified onboard system, Klingon has the right to terminate its agreement upon
60 days’ prior notice, subject to a 60-day cure period, if we fail to timely deliver the certified product. If Klingon terminates
its agreement, we may be responsible for refunding to Klingon the milestone payments that we have received. We will have to suspend
or modify our agreement with Klingon if our current equipment supplier is not able to provide certifiable onboard system equipment
package for the VSTC certification purpose.
We will provide airline partners with
the equipment necessary for in-flight connectivity, which is to be installed by the MRO service provider selected by the airline.
We will also provide training and technical support to each airline’s MRO for the installation of our equipment. Such support
will also include technical, management, and operational support, with 24/7 network monitoring of the performance of each aircraft’s
equipment.
We will rely on third-party suppliers
for equipment components that we use to provide our services, including those discussed below.
We will purchase our ground station equipment
from Blue Topaz Consultants, Ltd., a British Virgin Islands corporation, or BTC, under an agreement that we have with BTC dated
December 15, 2015. Under the terms of this agreement, BTC will develop and provide to us four (4) sets of ground station hub equipment,
or the Hub Equipment, for our use and sale into our Asian markets. We and BTC will separately enter into service agreements for
the installation and maintenance of the Hub Equipment systems. We have agreed to pay BTC $6,205,216 for the first Hub Equipment
system and have already made milestone payments to BTC totaling $3,250,000. The purchase price was increased to $6,234,260 on
November 30, 2016 due to the increase in cost of a software license. We will be required to pay BTC the balance of $2,984,260
owed on the first Hub Equipment system following delivery and service commencement of this system.
On January 15, 2015, we entered into a
statement of work with dMobile for the development by dMobile of a next generation satellite-based data link system that can utilize
advanced protocols such as WiMAX 2.1. According to the terms of this agreement, deliveries of work product were delivered to us
over a scheduled period of time with the final delivery having been completed. The purchase price for this project was $4,950,000.
We paid dMobile a non-refundable prepayment of $1,000,000. We and dMobile agreed to offset each other’s accounts receivable
and accounts payable under this agreement and the agreement referred to under “-Our IFEC Solutions-Our Connectivity Solutions”
above. After reconciliation of both accounts, we owed dMobile $471,100 which we agreed to settle through the issuance to dMobile
of 94,220 shares of our common stock.
In January 2016, we entered into a purchase
order, which we refer to as the Purchase Order, pursuant to which PPTW agreed to purchase from Aircom a set of mobile satellite
communication equipment priced at $909,000. In March 2017, PPTW informed us that it desired to terminate its satellite communications
related business and return the equipment that it purchased from us for a full refund. In settlement of this agreement, we agreed
to accept a return of the equipment and to convert PPTW’s payment to us of $819,300 into a subscription for 163,860 shares
of our common stock. For a more detailed discussion of this settlement agreement, see “
Certain Relationships and Related
Party Transactions - Transactions with Affiliates
,” below
Our Technology
Dual-Band Hybrid Satellite System
We believe that mobile satellite broadband
service requires the bandwidth efficiency provided by Ka band satellite and spot beam-based HTS. However, limited Asia-Pacific
coverage area of Ka HTS systems restrict the use of a pure Ka band system. Our design of dual Ka/Ku band satellite terminal allows
independent acquisition of Ka and Ku band satellites at different orbital positions thus maximizing the utilization of satellite
bandwidth.
Transcoding
The current mainstream video compression
format is H.264, also known as MPEG-4 Advanced Video Coding. It is widely used in Blu-ray discs, online videos, web software,
and HDTV broadcasts terrestrially and over cable and satellite.
H.265, also known as High Efficiency Video
Coding, is a newly developed video compression standard designed to replace H.264. It is capable of delivering H.264 video quality
at half the bit rate. H.265 has several significant advantages over H.264, including better compression, higher image quality,
and lower bandwidth usage.
We incorporate hardware-based, real-time
technology that transcodes content from multiple streaming or broadcast input forms. We convert the content into H.265-encoded
Internet protocol, or IP, streams, which reduces the amount of bandwidth required while enhancing the quality of the content.
By deploying real-time transcoding technology in its ground and airborne systems, we enable live TV and video streaming in an
IP format that optimizes satellite bandwidth utilization and achieves cost-effective content delivery.
Satellite Link Acceleration
The most common transmission control protocols,
or TCPs, used in the Internet have been designed for terrestrial wired networks. TCPs do not perform well in long-delay satellite
environment and may cause bad user experiences in web surfing and Internet access.
Our satellite link acceleration technology
improves TCP/IP-based data transmission over a satellite system through compression, deduplication, caching, latency optimization,
packet aggregation, and cross-layer enhancement. This technology includes end-to-end software in airborne system and ground server
for cost effective application accelerator and optimization of live TV and video streaming. This combination of technologies makes
airborne Web access and contents access feel like fiber at home.
AirCinema
AirCinema incorporates projector-based
H.265 steaming technology onboard an aircraft. We have optimized this projector system technology for in-flight viewing and entertainment
purposes by utilizing auto focusing, zooming, and alignment, as well as dynamic brightness control. Passengers can use the AirCinema
directional audio system to enjoy onboard music and content without the need for a separate headset.
Our Intellectual Property
We rely on a combination of intellectual
property rights, including trade secrets, patents, copyrights, trademarks and domain names, as well as contractual restrictions
to protect intellectual property and proprietary technology owned or used by us.
We have patented a certain number of our
technologies in the United States, Europe, China and Taiwan. Our patents within and outside of the United States will expire at
dates ranging from 2030 to 2031. We do not believe our business is dependent to any material extent on any single patent or group
of patents that we own. We also have a number of patent applications pending both within and outside of the United States, and
we will continue to seek patent protection in the United States and certain other countries to the extent we believe such protection
is appropriate and cost-effective.
We consider our brands to be important
to the success of our business and our competitive position. We rely on both trademark registrations and common law protection
for trademarks. Our registered trademarks in the United States and certain other countries include, among others, “AirCinema”,
“AirTelecom”, “AircomPac” although we have not yet obtained registrations for our most important marks
in all markets in which we currently do business or intend to do business in the future. Generally, the protection afforded for
trademarks is perpetual, if they are renewed on a timely basis, if registered, and continue to be used properly as trademarks.
We license or purchase from third parties’
technology, software and hardware that are critical to providing our products and services. Much of this technology, software
and hardware is customized for our use and would be difficult or time-consuming to obtain from alternative vendors.
We have developed certain ideas, processes,
and methods that contribute to our success and competitive position that we consider to be trade secrets. We protect our trade
secrets by keeping them confidential through the use of internal and external controls, including contractual protections with
employees, contractors, customers, vendors, and airline partners. Trade secrets can be protected for an indefinite period so long
as their secrecy is maintained.
Our Competition
Our key competitors include Gogo Inc.,
which has the largest installed base in the IFEC market mainly via air-to-ground technology and L-band connectivity services and
provides a passenger-paid system of connectivity solutions and wireless in-flight entertainment services, and Panasonic Avionics
Corp., which provides IFEC hardware and solutions via L-band and Ku-band technology. Other competitors include ViaSat, Global
Eagle Entertainment, Inc., OnAir and Thales/LiveTV, all of which provide different technologies and strategies to provide in-flight
connectivity and/or entertainment. Regardless of the delivery mechanisms used by us or our competitors, the IFEC industry as a
whole faces, and is expected to continue to face, capacity constraints and unique technology challenges, which are expected to
increase due to increased demand for in-flight Internet.
We believe that the following competitive
strengths enable us to compete effectively in and capitalize on the growing IFEC market.
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Unique business
model
. We believe that our business model sets us apart from our competitors. We combine cutting-edge connectivity
technology with a unique content-driven approach. Traditionally, providers of in-flight connectivity focus primarily on the
profit margin derived from the sale of hardware to airlines and of bandwidth to passengers. Both airlines and passengers have
to “pay to play,” which results in low participation and usage rates. We break away from this model and set a
new trend with our business model, under which neither airlines nor passengers need to pay for products or services. Furthermore,
our business plan provides our airline partners with an opportunity to participate in our revenue sharing model. Taken together,
this novel approach creates incentive for the airlines to work with us while driving up passenger usage rates.
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Dual-band
satellite technology
. Most in-flight connectivity systems currently rely on the Ku-band satellite signals for communication,
though many players in the market are working to provide higher bandwidth and faster transmitting rates using the Ka-band.
However, there are few Ka-enabled satellites, which limits the coverage area in the Asia-Pacific region. Our dual band system
architecture brings our airline partners and their passengers the benefits of both Ka- and Ku-band satellite technology. The
Ka-band increases data throughput, while the Ku-band offers reliable service outside of the Ka-band coverage area or when
Ka-band is not available due to weather or other interference.
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Our Growth Strategy
We will strive to be a leading provider
of IFEC solutions by pursuing the following growth strategies:
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Increase number
of connected aircraft
. As of the date of this report, we have not provided our services on any commercial aircraft.
However, we plan to rollout installation and provide our services in 2018. We plan to leverage our unique ability to cost-effectively
equip each commercial aircraft type in an airline’s fleet to increase the number of equipped aircraft, targeting full-fleet
availability of our services for our current and future airline partners. We continue to pursue this significant global growth
opportunity by leveraging our broad and innovative technology platform and technical expertise. Further, we offer attractive
business models to our airline partners, giving them the flexibility to determine the connectivity solution that meets the
unique demands of their business.
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Increase passenger
use of connectivity
. We believe that our business model, under which neither airlines nor passengers need to pay for
products or services, will create an incentive for the airlines to work with us while driving passenger usage rates to levels
management believes could reach 90% or more, considering the fact that many passengers now carry more than one smart device.
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Expand satellite
network
. We will continue to expand our global satellite network coverage through the purchase of additional Ku-band
and Ka-band capacity, and seek to install aircraft with our satellite solutions, while continuing to invest in research and
development of satellite antenna and modem technologies. We are actively working with satellite providers in order to accommodate
airlines’ global routes and growing fleets. We are monitoring the satellite industry for growth in coverage, with recent
attention on China Satcom’s plan to launch high-capacity Ka-band and Ka HTS multispot-beam satellites over the Asia-Pacific
region.
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Expand satellite-based
services to other markets
. We anticipate broadening our satellite-based services to high-speed railways, maritime
and cruise lines, 4G/5G backhauling, and converged triple-play services in remote communities, with the potential to expand
internationally into new markets. Future business prospects will be evaluated on a case by case basis by weighing the projected
revenue from advertising fees and e-commerce revenue shares against the operating and capital expenditures of satellite coverage,
bandwidth and operations. Our existing business model could be applied to high-speed railways and cruise lines, both of which
have a sufficient passenger base for the service to be viable. High-speed railways in China that sit under our Ka satellite
coverage area are not served by 4G/LTE mobile networks, providing us with a unique opportunity to deliver our services. High-speed
railways in other regions of Asia present similar opportunities. Remote communities in Asia lack a telecom infrastructure,
partly due to geographical limitations such as the many islands of the Philippines or Indonesia. Satellite-based communications
and mesh network technology make triple play services possible, delivering live TV broadcasting, videos, and telecom services
to these regions.
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Regulation
As a participant in the global airline
and global telecommunication industries we are subject to a variety of government regulatory obligations
Federal Aviation Administration
The Federal Aviation Administration of
the United States, or FAA, prescribes standards and certification requirements for the manufacturing of aircraft and aircraft
components, and certifies and rates repair stations to perform aircraft maintenance, preventive maintenance and alterations, including
the installation and maintenance of aircraft components. Each type of aircraft operated in the United States under an FAA-issued
standard airworthiness certificate must possess an FAA Type Certificate, or TC, which constitutes approval of the design of the
aircraft type based on applicable airworthiness standards. When a party other than the holder of the Type Certificate develops
a major modification to an aircraft already type-certificated, that party must obtain an FAA-issued Supplement Type Certificate,
or STC, approving the design of the modified aircraft type. We will regularly obtain an STC for each aircraft type operated by
each airline partner on whose aircraft our equipment will be installed and separate STCs typically are required for different
configurations of the same aircraft type, such as when they are configured differently for different airlines.
After obtaining an STC, a manufacturer
desiring to manufacture components to be used in the modification covered by the STC must apply to the FAA for a Parts Manufacturing
Authority, or PMA, which permits the holder to manufacture and sell components manufactured in conformity with the PMA and its
approved design and data package. In general, each initial PMA is an approval of a manufacturing or modification facility’s
production quality control system. PMA supplements are obtained to authorize the manufacture of a particular part in accordance
with the requirements of the pertinent PMA, including its production quality control system. We routinely apply for and receive
such PMAs and supplements.
Our business depends on our continuing
access to, or use of, these FAA certifications, authorizations and other approvals, and our employment of, or access to, FAA-certified
individual engineering and other professionals.
In accordance with these certifications,
authorizations and other approvals, the FAA requires that we maintain, review and document our quality assurance processes. The
FAA may also visit our facilities at any time as part of our agreement for certification as a manufacturing facility and repair
station to ensure that our facilities, procedures, and quality control systems meet FAA approvals we hold. In addition, we are
responsible for informing the FAA of significant changes to our organization and operations, product failures or defects, and
any changes to our operational facilities or FAA-approved quality control systems. Other FAA requirements include training procedures
and drug and alcohol screening for safety-sensitive employees working at our facilities.
Foreign Aviation Regulation
According to international aviation convention,
the airworthiness of FAA-certified equipment installed on U.S.-registered aircraft is recognized by civil aviation authorities,
or CAAs, worldwide. As a result, we do not expect to require further airworthiness certification formalities in countries outside
of the United States for U.S.-registered aircraft that already have an STC issued by the FAA covering our equipment. For aircraft
registered with a CAA other than the United States, the installation of our equipment requires airworthiness certification from
an airworthiness certification body. Typically, the CAA of the country in which the aircraft is registered is responsible for
ensuring the airworthiness of any aircraft modifications under its authority.
The FAA holds bilateral agreements with
a number of certification authorities around the globe. Bilateral agreements facilitate the reciprocal airworthiness certification
of civil aeronautical products that are imported/exported between two signatory countries. A Bilateral Airworthiness Agreement,
or BAA, or Bilateral Aviation Safety Agreement, or BASA, with Implementation Procedures for Airworthiness provides for airworthiness
technical cooperation between the FAA and its counterpart civil aviation authorities. Under a BAA or BASA, the CAA of the aircraft’s
country of registration generally validates STCs issued by the FAA and then issues a VSTC. For countries with which the FAA does
not have a BAA or BASA, we must apply for certification approval with the CAA of the country in which the aircraft is registered.
In order to obtain the necessary certification approval, we will be required to comply with the airworthiness regulations of the
country in which the aircraft is registered. Failure to address all foreign airworthiness and aviation regulatory requirements
at the commencement of each airline partner’s service in any country in which they register aircraft when there are no applicable
bilateral agreements may lead to significant additional costs related to certification and could impact the timing of our ability
to provide our service on our airline partners’ fleet.
Federal Communications Commission
Under the Communications Act of 1934,
as amended, or the Communications Act, the U.S. Federal Communications Commission, or FCC, licenses the spectrum that we use and
regulates the construction, operation, acquisition and sale of our wireless operations. The Communications Act and FCC rules also
require the FCC’s prior approval of the assignment or transfer of control of an FCC license, or the acquisition, directly
or indirectly, of more than 25% of the equity or voting control of our company by non-U.S. individuals or entities.
Our various services are regulated differently
by the FCC. Our business may provide some of its voice and data services by reselling the telecommunications services of satellite
operators. Because we may provide these services on a common carrier basis, we may subject to the provisions of Title II of the
Communications Act, which require, among other things, that the charges and practices of common carriers be just, reasonable and
non-discriminatory.
We provide broadband Internet access to
commercial airlines and passengers. We plan to offer this service in the Asia-Pacific region and continental United States through
our partner’s facilities, using satellite based data delivery.
The FCC has classified mobile (and fixed)
broadband Internet access services as Title II telecommunications services pursuant to the FCC Open Internet Order of 2010, or
the Open Internet Order. The Open Internet Order also adopted broad new net neutrality rules. For example, broadband providers
may not block access to lawful content, applications, services or non-harmful devices. Broadband providers also may not impair
or degrade lawful Internet traffic on the basis of content, applications, services or non-harmful devices. In addition, broadband
providers may not favor some lawful Internet traffic over other lawful traffic in exchange for consideration of any kind, and
they may not prioritize the content and services of their affiliates. Other than for paid prioritization, the rules contain an
exception for “reasonable network management.” The Open Internet Order recognizes that whether a network management
practice is reasonable varies according to the broadband technology involved, and provides more flexibility to implement network
management practices in the context of our capacity-constrained satellite broadband networks.
In addition, most of our services are
subject to various rules that seek to ensure that the services are accessible by persons with disabilities, including requirements
related to the pass-through of closed captioning for certain IP-delivered video content.
Equipment Certification
We may not lease, sell, market or distribute
any radio transmission equipment used in the provision of our services unless such equipment is certified by the FCC as compliant
with the FCC’s technical rules. All certifications required for equipment currently used in the provision of our services
have been obtained by our equipment vendors and/or partners.
Privacy and Data Security-Related
Regulations
As noted above, the Open Internet Order
reclassified mobile (and fixed) broadband Internet access services as Title II telecommunications services. Certain statutory
provisions of Title II now apply to broadband Internet access services, including provisions that impose consumer privacy protections
such as CPNI requirements.
Our services are also subject to CPNI
rules that require carriers to comply with a range of marketing and privacy safeguards. These obligations focus on carriers’
access, use, storage and disclosure of CPNI. We believe we are in compliance with these rules and obligations, and we certify
annually, as required, that we have established operating procedures adequate to ensure our compliance.
We are also subject to other federal and
state consumer privacy and data security requirements. For example, Section 5 of the Federal Trade Commission, or FTC, Act prohibits
“unfair or deceptive acts or practices in or affecting commerce.” Although the FTC’s authority to regulate the
non-common carrier services offered by communications common carriers has not been clearly delineated, FTC officials have publicly
stated that they view the FTC as having jurisdiction over Internet service providers’ non-common carrier services. Some
of our services are subject to the FTC’s jurisdiction. The FTC has brought enforcement actions under the FTC Act against
companies that, inter alia: (1) collect, use, share, or retain personal information in a way that is inconsistent with the representations,
commitments, and promises that they make in their privacy policies and other public statements; (2) have privacy policies that
do not adequately inform consumers about the company’s actual practices; and (3) fail to reasonably protect the security,
privacy and confidentiality of nonpublic consumer information.
We plan to collect personally identifiable
information, such as name, address, e-mail address and credit card information, directly from our users when they register to
use our service. We also may obtain information about our users from third parties. We use the information that we collect to,
for example, consummate their purchase transaction, to customize and personalize advertising and content for our users and to
enhance the entertainment options when using our service. Our collection and use of such information is intended to comply with
our privacy policy, which is posted on our website, applicable law, our contractual obligations with third parties and industry
standards, such as the Payment Card Industry Data Security Standard. We are also subject to state “mini-FTC Acts,”
which also prohibit unfair or deceptive acts or practices, along with data security breach notification laws requiring entities
holding certain personal data to provide notices in the event of a breach of the security of that data. Congress has also been
considering similar federal legislation relating to data breaches. A few states have also imposed specific data security obligations.
These state mini-FTC Acts, data security breach notification laws, and data security obligations may not extend to all of our
services and their applicability may be limited by various factors, such as whether an affected party is a resident of a particular
state.
While we intend to implement reasonable
administrative, physical and electronic security measures to protect against the loss, misuse and alteration of personally identifiable
information, cyber-attacks on companies have increased in frequency and potential impact in recent years and may be successful
despite reasonable precautions and result in substantial potential liabilities.
Truth in Billing and Consumer Protection
The FCC’s Truth in Billing rules
generally require full and fair disclosure of all charges on customer bills for telecommunications services, except for broadband
Internet access services. Thus, these rules apply to our satellite-based services. This disclosure must include brief, clear and
non-misleading plain language descriptions of the services provided. States also have the right to regulate wireless carriers’
billing; however, we are not currently aware of any states that impose billing requirements on our services.
CALEA
The FCC has determined that facilities-based
broadband Internet access providers are subject to the Communications Assistance for Law Enforcement Act of 1994, or CALEA, which
requires covered service providers to build certain law enforcement surveillance assistance capabilities into their communications
networks and to maintain CALEA-related system security policies and procedures.
Foreign Government Approvals
In connection with our satellite service,
we have implemented a process for obtaining any required authority needed to provide our service over the airspace of foreign
countries, or verifying that no additional authorization is needed. Each country over which our equipped aircraft flies has the
right to limit, regulate (e.g., through a licensing regime) or prohibit the offering of our service. We may not be able to obtain
the necessary authority for every country over which a partner airline flies. For some countries, we have not been and do not
expect to be able to obtain a definitive answer regarding their potential regulation of our service, and we may incur some regulatory
risk by operating over the airspace of these countries. Failure to comply with foreign regulatory requirements could result in
penalties being imposed on us and/or on our airline partners or allow our airline partners affected by such requirements to terminate
their contract with us prior to expiration. Moreover, even countries that have previously provided clearance for our service have
the right to change their regulations at any time.
Our Corporate History and Background
We were incorporated in the State of Nevada
on August 14, 2013 under the name Maple Tree Kids, Inc. At the time of our incorporation, our sole officer and director, Ms. Irina
Goldman, subscribed for and purchased 100,000 (1,000,000 pre-Reverse Split) shares of our common stock at a purchase price of
$0.001 per share.
We were incorporated in order to acquire
by merger all of the limited liability company interests of Maple Tree Kids LLC, a Vermont limited liability company, or MTK LLC.
Ms. Goldman had personally acquired all of the limited liability company interests of MTK LLC for a total purchase price of $8,800
on August 16, 2013. MTK LLC then merged with and into our company on September 27, 2013. Our company was the surviving company
in the merger and the separate existence of MTK LLC ceased and we succeeded to all of the assets of MTK LLC as a result of the
merger. At the effective time of the merger, each limited liability company percentage interest in MTK LLC held by Ms. Goldman
was automatically changed and converted into one thousand shares of our common stock. Since Ms. Goldman owned 100% of the limited
liability company interests in MTK LLC at the time of the merger, she received a total of 100,000 shares of our common stock as
a result of the merger. In addition, on September 26, 2013, Ms. Goldman converted $5,000 of indebtedness that our company owed
to her into shares of common stock by cancelling such debt in exchange for a total of 500,000 shares of our common stock pursuant
to a subscription agreement dated as of such date.
On December 28, 2016, Aircom purchased
all 700,000 shares of our common stock held by Ms. Goldman for $320,000, pursuant to a stock purchase agreement among Aircom,
Ms. Goldman and our company, dated as of such date. Such shares represented approximately 86.3% of our issued and outstanding
common stock as of the closing. Accordingly, as a result of the transaction, Aircom became the controlling stockholder of our
company. Ms. Goldman resigned as our sole director and officer upon closing of this stock purchase transaction and appointed Mr.
Jeffrey Wun as our sole director and our President, Treasurer and Secretary.
On January 10, 2017, we changed our name
to Aerkomm Inc. in anticipation of our new business and the completion of the reverse acquisition described below. On that date,
we also effectuated a one for ten reverse split of the Company’s outstanding common stock.
On February 13, 2017, Aerkomm entered
into a share exchange agreement (“the Exchange Agreement”) with Aircom and its shareholders, pursuant to which Aerkomm
acquired 100% of the issued and outstanding capital stock of Aircom in exchange for approximately 99.7% of the issued and outstanding
capital stock of Aerkomm (or 87.8% on a fully-diluted basis). As a result of the share exchange, Aircom became a wholly-owned
subsidiary of Aerkomm, and the former shareholders of Aircom became the holders of approximately 99.7% of Aerkomm’s issued
and outstanding capital stock. For accounting purposes, the share exchange transaction with Aircom was treated as a reverse acquisition,
with Aircom as the acquirer and the Company as the acquired party. Unless the context suggests otherwise, when we refer in this
report to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring
to the business and financial information of Aircom and its consolidated subsidiaries.
Upon the closing of the reverse acquisition
on February 13, 2017, Mr. Jeffrey Wun, our sole director and President, Treasurer and Secretary, resigned from his positions as
President, Treasurer and Secretary. On the same date, the following persons were appointed to our board of directors: Peter Chiou,
Jan-Yung Lin, Colin Lim and Barbie Shih. In addition, Peter Chiou was appointed as our Chairman, Chief Executive Officer and President.
On December 29, 2017, stockholders of
the Company holding 33,230,902 shares of the Company’s outstanding common stock, or approximately 80.15% of the outstanding
common stock of the Company, voted by written consent in lieu of an annual meeting to elect the following six (6) persons to the
board of directors of the Company to serve until the Company’s next annual meeting or until their resignations are duly
tendered and accepted: Jeffrey Wun, Jan-Yung Lin, Colin Lim, Raymond Choy, Chih-Ming (Albert) Hsu, and James J. Busuttil. Peter
Chiou, Barbie Shih and Robert Lu were not re-elected to the Company’s board of directors under the stockholders’ written
consent in lieu of annual meeting.
On December 30, 2017, the Company’s
board of directors by unanimous written consent appointed Mr. Jeffrey Wun as President and Chief Executive Officer of the Company,
effective December 31, 2017. Mr. Chiou resigned from these positions, effective December 31, 2017, and is expected to become a
consultant to the Company for a short period of time. On January 22, 2018, our board of directors appointed Mr. Wun as its chairman.
As a result of our acquisition of Aircom,
we now own all of the issued and outstanding capital stock of Aircom, which is an IFEC service provider. Aircom was incorporated
in the State of California on September 29, 2014. It owns all of the equity interests of Aircom Seychelles, Aircom HK and Aircom
Japan.
On October 13, 2016, Aircom completed
the acquisition of Aircom HK for $100,000 and on December 12, 2016 Aircom completed the acquisition from Capricorn Union Limited
(“Capricorn”) of the outstanding share capital of Aircom Japan for $600,000. These entities were acquired to facilitate
the application for satellite and ground station licenses in the local markets and to better serve local customers and business
development.
During 2017, Aircom advanced a total of
$460,000 (the “Prepayment”) to Aircom Telecom LLC, or Aircom Taiwan, a Taiwan limited liability company that was not
affiliated with Aircom during that time, for working capital, as part of a planned $1,500,000 aggregate equity investment (the
“Equity Investment”) in Aircom Taiwan. Aircom Taiwan acted as Aircom’s agent in Taiwan. Before Aircom Taiwan
was allowed to issue equity to Aircom, because Aircom, a foreign investor, the Equity Investment must be approved by the Investment
Review Committee of the Ministry of Economic affairs of Taiwan (the “Committee”). Aircom entered into an Equity Pre-Subscription
Agreement with Aircom Taiwan dated as of August 13, 2017, to memorialize the terms of the Equity Investment. On December 19, 2017,
the Committee approved Aircom’s initial Equity Investment (valued as of that date at NT$15,150,000, or approximately US$500,000)
and the purchase of the founding owner’s total equity of NT$100,000 (approximately US$3,350). As a result of the approval
of the Equity Investment, Aircom Taiwan is now a 100% wholly owned subsidiary of Aircom.
Employees
As of March 28, 2018, we had a total of
19 employees, 15 of whom are full-time employees. The following table sets forth the number of our full-time employees by function.
Function
|
|
Number
of Employees
|
|
Operations
|
|
|
4
|
|
Sales and Marketing
|
|
|
4
|
|
Research and Development
|
|
|
8
|
|
General and Administrative
|
|
|
3
|
|
Total
|
|
|
19
|
|
None of our employees belongs to a union
or is a party to any collective bargaining or similar agreement. We consider our relationships with our employees to be good.
Properties
Aircom currently leases approximately
4,958 square feet of space at the Fremont, CA address, comprised of administrative offices, from Global Venture Development, LLC,
which lease expires on May 31, 2017. On May 31, 2017, the lease was renewed for another three years, expires May 31, 2020. We
pay a monthly base rent of $6,446.
Aircom Japan leases approximately 78 square
meters of space at our Japan office. The lease expires on July 20, 2018 and the monthly lease payment is approximately $2,892.
Aircom Japan also leases additional space from Daniel Shih, the Company’s co-founder, at a cost of $1,215 per month.
We believe that our properties have been
adequately maintained, are generally in good condition, and are suitable and adequate for our business.
Legal Proceedings
We are involved in legal proceedings in
the ordinary course of our business. Although our management cannot predict the ultimate outcome of these legal proceedings with
certainty, it believes that the ultimate resolution of our legal proceedings, including any amounts we may be required to pay,
will not have a material effect on our consolidated financial statements.
On or about July 27, 2016, AsiaSat initiated
an arbitration proceeding in the Hong Kong International Arbitration Centre against Aircom, claiming a breach under the Digital
Transmission Service Agreement dated July 25, 2015 between AsiaSat and Aircom. AsiaSat claims that Aircom owes it approximately
$8.1 million in unpaid service fees, default payments and liquidated damages. Aircom disagrees with the payable balance and believes
that it owes AsiaSat approximately $1.3 million in services fees. Aircom has paid AsiaSat $875,000 as a security deposit. Aircom
further alleges misrepresentation from AsiaSat in entering into the agreement and is actively defending the matter. On November
21, 2016, the Hong Kong International Arbitration Centre appointed a sole arbitrator to hear the dispute. On January 12, 2017,
Aircom asserted a counterclaim against AsiaSat for misrepresentations made to induce entry into the agreement. Aircom and AsiaSat
reached a settlement with respect to the Agreement as of July 25, 2017, with an effective date of July 20, 2017.
MANAGEMENT
Directors and Executive Officers
The following table sets forth the name,
age, position and date of appointment of each of our directors and executive officers as of March 28, 2018. Each director serves
until our next annual meeting or until his or her successor is duly elected and qualified. Each executive officer serves until
the earlier of his or her death or resignation, or his or her successor is duly elected and qualified.
Name
|
|
|
Age
|
|
|
Position
|
|
Date
of Appointment
|
|
Jeffrey
Wun
|
|
|
51
|
|
|
Chief Executive
Officer, President and Chairman
|
|
December 29, 2017
|
|
Y.
Tristan Kuo
|
|
|
63
|
|
|
Chief Financial
Officer and Treasurer
|
|
April 10, 2017
|
|
Jan-Yung
Lin
|
|
|
56
|
|
|
Secretary and Director
|
|
February 13, 2017
|
|
Raymond
Choy
|
|
|
37
|
|
|
Director
|
|
December 29, 2017
|
|
Colin
Lim
|
|
|
53
|
|
|
Director
|
|
February 13, 2017
|
|
Chih-Ming
(Albert) Hsu
|
|
|
42
|
|
|
Director
|
|
December 29, 2017
|
|
James
J. Busuttil
|
|
|
59
|
|
|
Director
|
|
December 29, 2017
|
|
Y. Tristan Kuo
. Mr. Kuo
has served as our Chief Financial Officer and Treasurer since April 10, 2017. Mr. Kuo has served as Chief Financial Officer and
Treasurer of Aircom since May 2017. Mr. Kuo has more than 30 years of experience in accounting, financing and information systems
for companies in the bio-pharmaceutical, manufacturing, commodity trading and banking industries, and has served in the capacities
of CFO, CIO and Controller. Mr. Kuo has served as the Vice President of Investor Relations of Nutrastar International, Inc. (OTCPK:
NUIN) since April 2016. Mr. Kuo also served as the Chief Financial Officer of Success Holding Group International, Inc., a provider
of personal improvement seminars, from August 2015 to April 2017. Prior to that, he served as CFO/CIO Partner of Tatum, a management
and advisory services firm, from December 2014 to August 2015, as an independent board member and audit committee chairman of
KBS Fashion Group Limited (NASDAQ: KBSF) from August 2014 to May 2015, and as the Chief Financial Officer of Crown Bioscience,
Inc. from June 2012 to November 2013. Prior to that, Mr. Kuo served as Chief Financial Officer of China Biologic Products, Inc.
(NASDAQ: CBPO), a Chinese biopharmaceutical company, from June 2008 to May 2012 and served as its Vice President of Finance between
September 2007 and May 2008. Prior to that, Mr. Kuo worked for the Noble Group in Hong Kong as the Senior Business Analysis Manager
from February through August 2007 and as the Controller, Vice President of Finance and CFO of Cuisine Solution, Inc., a previously
publicly traded company in Alexandria, Virginia, from December 2002 to January 2007. Mr. Kuo also served as the Vice President
of Information Systems for Zinc Corporation of America in Monaca, Pennsylvania from 2001 and 2002 and as Chief Information Officer
and Controller of Wise Metals Group in Baltimore, Maryland, from 1991 to 2001. Mr. Kuo received his Master’s degree in Accounting
from The Ohio State University and Bachelor’s degree in Economics from Soochow University, Taipei.
Jeffrey Wun
. Mr. Jeffrey
Wun has served as our President and Chief Executive Officer since December 31, 2017. Mr. Wun has been a member of our board of
directors since the reverse acquisition of Aircom on February 13, 2017 and was appointed as Chairman of the board of directors
on January 22, 2018. Mr. Wun previously served as our President, Treasurer and Secretary from December 2016 to February 2017.
Mr. Wun has served as Aircom’s Chief Technology Officer since December 2014. Mr. Wun is a technologist with more than 25
years of experience in the communications industry. Prior to joining Aircom Mr. Wun served as Senior Staff Engineer at Samsung
Electronics Co., Ltd. from December 2012 to May 2015. Prior to that, Mr. Wun was a profession engineer at MediaTEK USA Inc. from
November 2010 to December 2012 and served as Chief Executive Officer at Kairos System Inc. from 2003 to 2010. Mr. Wun received
a Bachelor of Science degree in Biochemistry and Computer Science from Chinese University of Hong Kong in 1988.
Jan-Yung Lin
. Mr. Jan-Yung
Lin has served as a member of our board of directors since the reverse acquisition of Aircom on February 13, 2017 and as Secretary
since December 2016. Mr. Lin served as Aircom’s President since June 2017, as Aircom’s Chief Executive Officer from
February 2015 to October 2016, as Aircom’s Chief Operating Officer from September 2014 to February 2015, and as a director
of Aircom from September 2014 to February 2017. Mr. Lin has practiced corporate and business law at Concorde Law PC as a solo
practitioner since 2012. Prior to that Mr. Lin was the General Counsel and Chief Financial Officer of EMG Properties, Inc. in
California. Prior to that Mr. Lin was a corporate associate of Goodwin Procter LLP. Mr. Lin graduated
magna cum laude
from
Cornell Law School with a J.D. degree and an LL.M. degree in International and Comparative Law. Mr. Lin received an M.B.A. degree
from the University of California, Berkeley and a Bachelor’s degree from the National Taiwan University.
Raymond Choy.
Mr. Raymond
Choy has served as a member of our Board since December 2017. Mr. Choy has served as a member of the Board of Aircom since October
2017. Mr. Choy became a certified public accountant (CPA) in the state of California in 2006 and also received his chartered global
management accountant (CGMA) designation in 2013. Mr. Choy has provided accounting, consulting and advisory services to public
and private companies since July 2016 through his partnership with Beyond Century Consulting, LLC, a financial and business consulting
company. Mr. Choy has extensive experience auditing the financial statements and internal controls of public and private companies
as a senior manager at Frazer, LLP, a certified public accountants company, from July 2004 to June 2016. Mr. Choy received his
bachelor’s degree with in business administration with accounting concentration and minor in computer information systems
from California State Polytechnic University, Pomona, in 2003.
Colin Lim
. Mr. Colin Lim
has served as a member of our board of directors since the reverse acquisition of Aircom on February 13, 2017 and served as a
member of Aircom’s board from July 2015 to February 2017. In 2013, Mr. Lim founded Dynasty Media & Entertainment Group,
a movie production and distribution company and an investment company with interests in a variety of businesses, including restaurants,
wood and timber traders, exotic leather manufacturers, movie producers, copyrights transaction companies, and entertainment businesses,
as well as hi-tech companies, and is the Managing Director who oversees financing, investment, copyrights. Mr. Lim has served
as Executive Chairman of Sunny Leather from June 2006 and is responsible for general management. Mr. Lim has also served as Executive
Chairman of Anson International since March 2003 where he oversees investments. Mr. Lim has served as Managing Director of Euroamerica
International since December 1999 where he oversees management and trading operations of the company. Mr. Lim’s investment
experience in the movie and copyright businesses has allowed us to better negotiate and acquire sufficient movie copyrights and
entertainment content to complement our business model. Mr. Lim graduated from New South Wales University in Australia, where
he received his degree in engineering and business.
Chih-Ming (Albert) Hsu
.
Mr. Chih-Ming (Albert) Hsu has served as a member of our Board since December 2017. Mr. Hsu has served as a member of Aircom’s
board since April 2017. Mr. Hsu was admitted to practice law in Taiwan as a corporate and business lawyer and as a patent attorney
in 2002. Mr. Hsu is the owner of Chascord Law Firm. Mr. Hsu previously served as the arbitrator & mediator of the Chinese
Arbitration Association, Taipei. In addition, Mr. Hsu was the Chairman of Unitel High Technology Corporation, a listed company
on the Taiwan over-the-counter market from December 2015 to September 2016. Mr. Hsu received an LL.M and Bachelor of Law
degree from National Taiwan University in 2003 and 1997, respectively. Mr. Hsu is an expert of real estate securitization in Taiwan.
James J. Busuttil
. Dr. James
Busuttil has served as a member of our Board since December 2017. Dr. Busuttil is an attorney admitted to practice before the
courts of New York State since 1983, as well as numerous U.S. Federal Trial and Appeals Courts, practicing international, financial
and corporate law. Dr. Busuttil was elected as a Life Fellow of the U.K.-based Institute of Directors (IoD). Members are invited
to become Fellows of the IoD based on their substantial and sustained experience and contribution to business. Fellows are required
to have been a company director for at least five years and, at some point during this period, the entity must have had an annual
turnover or budget that exceeds £10 million. Dr. Busuttil has represented banks and financial institutions based in the
United States and other countries in private sector financing of domestic and international projects, negotiated alternative energy
project financings, handled transnational mergers and joint ventures, represented equity investors in venture capital transactions
and organized investment funds. In addition, Dr. Busuttil represented the Bank Advisory Group for a major Latin American debtor
nation in sovereign debt restructuring and handled a variety of private sector Latin American debt restructures. Dr. Busuttil
has been a Member of the Permanent Court of Arbitration (PCA) since 2007. The PCA is the oldest international tribunal in the
world established by the 1907 Convention for the Pacific Settlement of International Disputes. Membership of the PCA is strictly
by nomination of contracting states of individuals of known competency in questions of international law, of the highest moral
reputation, and disposed to accept the duties of Arbitrator. Dr. Busuttil is also a Member of the London Court of International
Arbitration Users’ Council. With respect to arbitration, Dr. Busuttil has been involved mainly in investment disputes. Dr.
Busuttil created the University of London’s Postgraduate Laws Program. Dr. Busuttil directed the University of London’s
Master of Laws (LL.M.), Postgraduate Diploma in Laws (PG Dip. Laws) and the Postgraduate Certificate in Laws (PG Cert. Laws) from
January 2004 to January 2015. Under Dr. Busuttil’s leadership, the Program grew to over 3,000 persons from more than 150
countries. Dr. Busuttil was appointed as an Honorary Professor at the Faculty of Law of University College London (UCL) in 2004.
Dr. Busuttil has been a member of the Pugwash Conference on Science and World Affairs, of the Council on Foreign Relations, and
of the Executive Council of the American Society of International Law. In the course of work, Dr. Busuttil has developed experience
and understanding in dealing with parties and organizations, including the private and public sectors, in South East Asia, East
Asia, Europe, the Middle East, Russia, North Africa and Australasia.
Directors and executive officers are elected
until their successors are duly elected and qualified. There are no arrangements or understandings known to us pursuant to which
any director or executive officer was or is to be selected as a director (or director nominee) or executive officer.
Director Independence
Our board of directors currently consists
of six members: Messrs. Wun, Lin, Lim, Choy, Hsu and Busuttil. Each director serves until our next annual meeting or until his
or her successor is duly elected and qualified. Our board of directors has determined that Messrs. Raymond Choy, Colin Lim and
James Busuttil are independent directors as that term is defined in the applicable rules for companies traded on The Nasdaq Capital
Market. Messrs. Choy, Lim and Busuttil are each members of the Audit Committee, Compensation Committee and Nominating and Governance
Committee.
Code of Ethics
Our board of directors has adopted a Code
of Ethical Conduct that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief
Financial Officer and other executive and senior financial officers. Our board of directors has also adopted a separate Code of
Professional Conduct for Chief Executive Officer and Senior Financial Officers. These codes are available in the Corporate Governance
Code of Ethical Conduct section of our website, www.aerkomm.com.
Further Information Concerning our
board of directors
Our board of directors currently has the
following standing committee(s): Audit Committee. We have not yet established a Compensation Committee or a Nominating and Governance
Committee.
Audit Committee
Our Audit Committee currently consists
of Messrs. Choy, Lim and Busuttil. Our board of directors has determined that Mr. Choy is an audit committee financial expert,
as defined in Item 407(d)(5) of Regulation S-K, and that each member of our Audit Committee is able to read and understand fundamental
financial statements and has substantial business experience that results in such member’s financial sophistication. Accordingly,
our board of directors believes that each member of our Audit Committee has sufficient knowledge and experience necessary to fulfill
such member’s duties and obligations on our Audit Committee. The primary purposes of our Audit Committee are to assist our
board of directors in fulfilling its responsibility to oversee the accounting and financial reporting processes of our company
and audits of our financial statements, including (i) reviewing the scope of the audit and all non-audit services to be performed
by our independent accountant and the fees incurred by us in connection therewith, (ii) reviewing the results of such audit, including
the independent accountant’s opinion and letter of comment to management and management’s response thereto, (iii)
reviewing with our independent accountants our internal accounting principles, policies and practices and financial reporting,
(iv) engaging our independent accountants and (v) reviewing our quarterly and annual financial statements prior to public issuance.
The role and responsibilities of our Audit Committee are more fully set forth in a written Charter adopted by our board of directors
on June 6, 2017, which is available on our website at www.aerkomm.com.
Compensation Committee
Our board of directors established our
Compensation Committee effective as of January 22, 2018, appointing Messrs. Lim, Choy and Busuttil as members, with Mr. Lim serving
as chairman of this committee. The Compensation Committee is structured as follows: The primary purposes of our Compensation Committee
is to assist our board of directors in fulfilling its responsibility to determine the compensation of our executive officers and
to approve and evaluate the compensation policies and programs of our company, including (i) reviewing the compensation packages
of executive officers and making recommendations to our board of directors for said compensation packages, (ii) reviewing and
approving proposed stock incentive grants and (iii) providing our board of directors with recommendations regarding bonus plans,
if any. The role and responsibilities of our Compensation Committee is more fully set forth in a written Charter adopted by our
board of directors and made available on our website at www.aerkomm.com.
The policies underlying our Compensation
Committee’s compensation decisions are designed to attract and retain the best-qualified management personnel available.
We routinely compensate our executive officers through salaries. At our discretion, we may reward executive officers and employees
through bonus programs based on profitability and other objectively measurable performance factors. Additionally, we use stock
options and other incentive awards to compensate our executives and other key employees to align the interests of our executive
officers with the interests of our stockholders. In establishing executive compensation, our Compensation Committee will evaluate
compensation paid to similar officers employed at other companies of similar size in the same industry and the individual performance
of each officer as it impacts our overall performance with particular focus on an individual’s contribution to the realization
of operating profits and the achievement of strategic business goals. Our Compensation Committee will further attempt to rationalize
a particular executive’s compensation with that of other executive officers of our company in an effort to distribute compensation
fairly among the executive officers. Although the components of executive compensation (salary, bonus and incentive grants) will
be reviewed separately, compensation decisions will be made based on a review of total compensation.
Nominating and Governance Committee
Our board of directors established our
Nominating and Governance Committee effective January 22, 2018, appointing Messrs. Busuttil, Lim and Choy as members, with Mr.
Busuttil serving as chairman of this committee. The Nominating and Governance Committee is structured as follows: The primary
purposes of our Nominating and Governance Committee is to (i) identify individuals qualified to become members of our board of
directors and recommend to our board of directors the nominees for the next annual meeting of our stockholders and candidates
to fill vacancies on our board of directors, (ii) recommend to our board of directors the directors to be appointed to committees
of our board of directors and (iii) oversee the effectiveness of our corporate governance in accordance with regulatory guidelines
and any other guidelines we establish, including evaluations of members of executive management, our board of directors and its
committees. The role and responsibilities of our Nominating and Governance Committee is more fully set forth in a written Charter
adopted by our board of directors and made available on our website at www.aerkomm.com.
Our Nominating and Governance Committee’s
methods for identifying candidates for election to our board of directors (other than those proposed by our stockholders, as discussed
below) includes the solicitation of ideas for possible candidates from a number of sources - members of our board of directors,
our executives, individuals personally known to the members of our board of directors, and other research. Our Nominating and
Governance Committee may also, from time-to-time, retain one or more third-party search firms to identify suitable candidates.
A stockholder of our company may nominate
one or more persons for election as a director at an annual meeting of stockholders if the stockholder complies with the notice,
information and consent provisions contained in our Bylaws. In addition, the notice must be made in writing and set forth as to
each proposed nominee who is not an incumbent Director (i) their name, age, business address and, if known, residence address,
(ii) their principal occupation or employment, (iii) the number of shares of stock of our company beneficially owned, (iv) a description
of all arrangements or understandings between the stockholder and each nominee and any other person pursuant to which the nominations
are to be made and (v) any other information concerning the nominee that must be disclosed respecting nominees in proxy solicitations
pursuant to Rule 14(a) of the Exchange Act. The recommendation should be addressed to our Secretary.
Among other matters, our Nominating and
Governance Committee will:
|
●
|
Review the desired
experience, mix of skills and other qualities to assure appropriate board of directors composition, taking into account the
current members of our board of directors and the specific needs of our company and our board of directors;
|
|
●
|
Conduct candidate
searches, interviews prospective candidates and conducts programs to introduce candidates to our management and operations,
and confirms the appropriate level of interest of such candidates;
|
|
●
|
Recommend qualified
candidates who bring the background, knowledge, experience, independence, skill sets and expertise that would strengthen and
increase the diversity of our board of directors; and
|
|
●
|
Conduct appropriate
inquiries into the background and qualifications of potential nominees.
|
Board Role in Risk Oversight
Our board of directors plays an active
role, as a whole and also at the committee level, in overseeing management of our risks and strategic direction. Our board of
directors regularly reviews information regarding our liquidity and operations, as well as the risks associated with each. Our
Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation plans and
arrangements. Our Audit Committee oversees the process by which our senior management and relevant employees assess and manage
our exposure to, and management of, financial risks. Our Nominating and Governance Committee also manages risks associated with
the independence of members of our board of directors and potential conflicts of interest. While each committee is responsible
for evaluating certain risks and overseeing the management of such risks, the entire board of directors is regularly informed
about such risks.
LEGAL PROCEEDINGS
We are involved in legal proceedings in
the ordinary course of our business. Although our management cannot predict the ultimate outcome of these legal proceedings with
certainty, it believes that the ultimate resolution of our legal proceedings, including any amounts we may be required to pay,
will not have a material effect on our consolidated financial statements.
On or about July 27, 2016, AsiaSat initiated
an arbitration proceeding in the Hong Kong International Arbitration Centre against Aircom, claiming a breach under the Digital
Transmission Service Agreement dated July 25, 2015 between AsiaSat and Aircom. AsiaSat claims that Aircom owes it approximately
$8.1 million in unpaid service fees, default payments and liquidated damages. Aircom disagrees with the payable balance and believes
that it owes AsiaSat approximately $1.3 million in services fees. Aircom has paid AsiaSat $875,000 as a security deposit. Aircom
further alleges misrepresentation from AsiaSat in entering into the agreement and is actively defending the matter. On November
21, 2016, the Hong Kong International Arbitration Centre appointed a sole arbitrator to hear the dispute. On January 12, 2017,
Aircom asserted a counterclaim against AsiaSat for misrepresentations made to induce entry into the agreement. Aircom and AsiaSat
reached a settlement with respect to the Agreement as of July 25, 2017, with an effective date of July 20, 2017.
EXECUTIVE
COMPENSATION
Summary Compensation Table - Fiscal
Years Ended December 31, 2017, 2016 and 2015
The following table sets forth, as to
our Chief Executive Officer and as to each of our other two most highly compensated executive officers whose compensation exceeded
$100,000 during the last fiscal year, information concerning all compensation paid for services to us in all capacities for our
last two fiscal years.
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
Peter
Chiou, Former CEO
|
|
2017
|
|
|
24,000
|
|
|
|
-
|
|
|
|
3,002,486
|
|
|
|
50,000
|
|
|
|
3,076,486
|
|
and President
(1)
|
|
2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,600
|
|
|
|
45,600
|
|
|
|
2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Y. Tristan Kuo,
CFO
(2)
|
|
2017
|
|
|
72,752
|
|
|
|
-
|
|
|
|
938,277
|
|
|
|
-
|
|
|
|
1,011,029
|
|
|
|
2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey Wun, CEO
|
|
2017
|
|
|
160,000
|
|
|
|
-
|
|
|
|
46,914
|
|
|
|
-
|
|
|
|
206,914
|
|
and President
(3)
|
|
2016
|
|
|
141,641
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
141,641
|
|
|
|
2015
|
|
|
129,583
|
|
|
|
-
|
|
|
|
3,000
|
|
|
|
-
|
|
|
|
132,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jiun-Sheuan Yang
(4)
|
|
2017
|
|
|
160,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
160,000
|
|
|
|
2016
|
|
|
128,308
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128,308
|
|
|
|
2015
|
|
|
153,333
|
|
|
|
-
|
|
|
|
2,500
|
|
|
|
-
|
|
|
|
155,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Irina Goldman, Former President
(5)
|
|
2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
(1)
|
On February 13,
2017, we acquired Aircom in a reverse acquisition transaction that was structured as a share exchange. In connection with
that transaction and effective immediately upon the closing of that transaction, Mr. Chiou became our Chief Executive Officer.
The annual, long term and other compensation shown in this table include the amounts that Mr. Chiou received from Aircom prior
to the consummation of the reverse acquisition. The amount included in all other compensation represents consulting fees paid
by Aircom to Mr. Chiou. Mr. Chiou resigned from his positions as President and Chief Executive Officer of the Company effective
December 31, 2017 and is expected to become a consultant to the Company for a short period of time. The stock awards listed
for Mr. Chiou represent the fair value of options granted to Mr. Chiou on June 23, 2017 to purchase 960,000 shares of our
common stock. Of these options, options to purchase 240,000 shares of our common stock were vested and exercisable, while
the remaining options to purchase 720,000 shares were forfeited as of December 31, 2017.
|
(2)
|
Mr. Kuo has served
as our Chief Financial Officer since April 10, 2017. The stock awards shown in this table represent the fair value of 300,000
shares of the options exercisable for 300,000 shares of our common stock granted on June 23, 2017, with options exercisable
for 75,000 shares of our common stock vested immediately and the remaining options exercisable for 225,000 shares of our common
stock vesting monthly, on a proportional basis over a three-year period.
|
(3)
|
Mr. Wun served as
our President from December 28, 2016 until February 13, 2017. He was appointed by our board of directors as Chief Executive
Officer and reappointed President effective December 31, 2017, upon the resignation of Mr. Chiou from these positions. He
also currently serves as the Chief Technology Officer of Aircom. The annual, long term and other compensation shown in this
table include the amounts that Mr. Wun received from Aircom prior to the consummation of the reverse acquisition. The 2017
stock awards listed for Mr. Wun represent the fair value of options to purchase 82,500 shares of our common stock granted
on June 23, 2017, which options vest annually, on a proportional basis, over three years.
|
(4)
|
Mr. Jiun-Sheuan
Yang has served as Aircom’s Vice President of Engineering since December 2014.
|
(5)
|
Ms. Goldman served
as our President from our inception on August 14, 2013 until December 28, 2016.
|
Employment Agreements
Y. Tristan Kuo
On March 31, 2017, we entered into an
employment agreement with Mr. Kuo (the “Employment Agreement”) effective April 10, 2017, pursuant to which we agreed
to pay Mr. Kuo an annual salary of $100,000, plus a guaranteed bonus of $85,000 payable on the earlier of (i) the first anniversary
of Mr. Kuo’s employment or (ii) upon closing of an equity or equity linked financing in which we or one of our subsidiaries
raises at least $15 million. Mr. Kuo will also be entitled to an annual bonus as recommended by our Chief Executive Officer and
approved by our board of directors. In addition, we agreed to grant Mr. Kuo an option to purchase 300,000 shares of our common
stock, with one quarter of the shares underlying the option to be vested immediately and the remaining shares to be vested equally
over three years on each anniversary of Mr. Kuo’s employment. Such option will be granted under our 2017 equity incentive
plan once such plan is approved by our stockholders. In addition, during the first nine months of Mr. Kuo’s employment or
until he relocates, if earlier, we also agreed to provide a furnished living accommodation, a car allowance of $400 per month,
and a personal travel allowance of $600 per month for Mr. Kuo to visit his spouse or vice versa. We also agreed to pay up to $6,000
in relocation expenses, should Mr. Kuo decide to relocate. We will also be responsible for medical insurance under our medical
plan or we will reimburse the premium of a medical plan that is comparable to the medical plan offered to other employees. Mr.
Kuo will also be eligible to participate in other standard benefits plans offered to similarly situated employees by us from time
to time.
The Employment Agreement also contains
covenants prohibiting Mr. Kuo from competing with us during his employment, or from soliciting any of our employees or consultants
for a period of two years after his employment ends. The Employment Agreement also contains customary confidentiality provisions.
The Employment Agreement may be terminated by either party for any reason upon 30 days’ notice. If Mr. Kuo’s employment
is terminated by us without cause, the portion of stock options to be vested for the year if completed shall be vested immediately.
Peter Chiou
On November 29, 2017, we entered into
an employment agreement with Mr. Chiou (the “Employment Agreement”) effective November 1, 2017, pursuant to which
we agreed to pay Mr. Chiou an annual salary of $144,000. Under the Employment Agreement, Mr. Chiou was entitled to twenty (20)
working days of vacation per year and was eligible to participate in other standard benefits plans offered to similarly situated
employees by us from time to time. Following Mr. Chiou’s resignation effective December 31, 2017, the Employment Agreement
effectively terminated. We expect that Mr. Chiou will become a consultant for a short period of time and will be paid $5,000 consulting
fee per month upon his entering into consulting and separation agreements with us.
Outstanding Equity Awards at Fiscal
Year End
There were no outstanding options held
by our named executive officers as of the end of our fiscal year ended December 31, 2016. As of December 31, 2017, Mr. Kuo had
options outstanding and exercisable for 300,000 shares of our common stock, at an exercise price of $5.50 per share, and Mr. Wun
had options outstanding and exercisable for 15,000 shares of our common stock, at an exercise price of $5.50 per share.
Director Compensation
To date, we have not paid any compensation
to our directors.
Effective December 29, 2017, we entered
into independent director agreements with Colin Lim, Raymond Choy and James Busuttil. Under the terms of these independent director
agreements, we have agreed to pay the independent directors an annual cash fee of $20,000, paid quarterly in four equal instalments,
commencing in the first quarter following closing of this offering, and an additional $5,000 cash compensation fee for serving
as board of directors committee chairmen. This additional fee will be paid no later than the fifth business day following the
filing of our Annual Report on Form 10-K with the SEC.
Each independent director is entitled
to receive an initial, fully vested stock option to purchase 20,000 shares of our common stock. If the Director is still a member
of the board of directors and continues to serve as a non-employee director immediately following each annual meeting of our stockholders,
the director will be automatically granted an additional option to purchase 20,000 shares of our common stock as of the date of
each such annual meeting. These additional option grants will vest and become exercisable in twelve (12) equal monthly installments
over the first year following the date of grant, subject to the director continuing in service on the board of directors through
each such vesting date. The per share exercise price of each option granted to the independent director will equal 100% of the
fair market value (as defined by the board of directors) of a share of our common stock on the date the option is granted, and
the term of each stock option granted to the director will be ten (10) years from the date of grant.
We also agreed to purchase directors and
officers liability insurance with coverage up to an aggregate maximum of $3 million commencing promptly following the final closing
of this offering, and to reimburse the independent directors for pre-approved reasonable business expenses incurred by them.
Equity Compensation Plan Information
On May 5, 2017, we established our 2017
Equity Incentive Plan (the “Plan”). The Plan was approved by our board of directors on May 5, 2017, and an amendment
to increase the number of shares of our common stock available for grant under the Plan was approved by the board of directors
on June 26, 2017. We expect that the Plan will be approved by our stockholders at our annual meeting in 2018. The purpose of the
Plan is to grant stock and options to purchase our common stock to our employees, directors and key consultants. The maximum number
of shares of common stock that may be issued pursuant to awards granted under the Plan, as amended is 10,000,000 shares. Cancelled
and forfeited stock options and stock awards may again become available for grant under the Plan. There were 4,054,011 shares
available for grant under the Plan as of January 30, 2018; 4,661,380 shares of our common stock are issuable upon the exercise
of options to be issued under the Plan to holders of Aircom options assumed by us as a result of the closing of the reverse acquisition
with Aircom, and options exercisable for 1,265,000 shares of our common stock have been approved by our board of directors for
grants to certain of our officers, directors, employees and service providers.
Equity Compensation Plan and Employee
Benefits
Summary of the 2017 Equity Incentive
Plan
The following summary briefly describes
the principal features of the Plan and is qualified in its entirety by reference to the full text of the Plan.
Administration
. The Plan is administered
by our recently formed Compensation Committee. Our Compensation Committee has the authority to select the eligible participants
to whom awards will be granted, to determine the types of awards and the number of shares covered and to set the terms, conditions
and provisions of such awards, to cancel or suspend awards under certain conditions, and to accelerate the exercisability of awards.
Our Compensation Committee is authorized to interpret the Plan, to establish, amend, and rescind any rules and regulations relating
to the Plan, to determine the terms of agreements entered into with recipients under the Plan, and to make all other determinations
that may be necessary or advisable for the administration of the Plan.
Eligibility
. All employees, directors
and individuals providing services to our company or its subsidiaries are eligible to participate in the Plan.
Shares Subject to Plan
. Subject
to adjustment as described herein, as of June 26, 2017 the number of shares of common stock that is available for grant of
awards under the Plan, as amended is 10,000,000 shares.
Stock Option and SAR Grants.
The
exercise price per share of common stock purchasable under any stock option or stock appreciation right (SAR) will be determined
by our Compensation Committee, but cannot in any event be less than 100% of the fair market value of our common stock on the date
the option is granted. Our Compensation Committee will determine the term of each stock option or SAR (subject to a maximum of
10 years) and each stock option or SAR will be exercisable pursuant to a vesting schedule determined by our Compensation Committee.
The grants and the terms of incentive stock options, or ISOs, shall be restricted to the extent required for qualification as
ISOs by the Internal Revenue Code, or the Code. Subject to approval of our Compensation Committee, stock options or SARs may be
exercised by payment of the exercise price in cash, shares of our common stock, which have been held for at least six months,
or pursuant to a “cashless exercise” through a broker-dealer under an arrangement approved by us. We may require the
grantee to pay to us any applicable withholding taxes that we are required to withhold with respect to the grant or exercise of
any award. The withholding tax may be paid in cash or, subject to applicable law, our Compensation Committee may permit the grantee
to satisfy such obligations by the withholding or delivery of shares of our common stock. We may withhold from any shares of our
common stock issuable pursuant to a stock option or SAR or from any cash amounts otherwise due from us to the recipient of the
award an amount equal to such taxes.
Stock Grants.
Shares may be sold
or awarded for consideration and with or without restriction as determined by the Compensation Committee, including cash, full-recourse
promissory notes, as well as past and future services. Any award of shares will be subject to the vesting schedule, if any, determined
by the Compensation Committee. In general, holders of shares sold or awarded under the Plan will have the same voting, dividend
and other rights as our other stockholders. As a condition to the purchase of shares under the Plan, the purchaser will make such
arrangements as our Compensation Committee may require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with such purchase.
Adjustments
. In the event of any
change affecting the shares of our common stock by reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, combination or exchange of shares or other similar corporate change, or any distribution to stockholders other than
cash dividends, our board of directors will make such substitution or adjustment in the aggregate number of shares that may be
distributed under the Plan and in the number and option price (or exercise or purchase price, if applicable) as it deems to be
appropriate in order to maintain the purpose of the original grant.
Termination of Service.
If a participant’s
service to our company terminates on account of death or disability, then the participant’s unexercised options, if exercisable
immediately before the participant’s death, disability or retirement, may be exercised in whole or in part, on the earlier
of the date on which such stock option would otherwise expire or one year after the event. If a participant’s service to
us terminates for any other reason, then the participant’s unexercised options, to the extent exercisable immediately before
such termination, will remain exercisable, and may be exercised in whole or in part, for a period ending on the earlier of the
date on which such stock option would otherwise expire or three months after such termination of service.
Amendment and Termination.
Our
board of directors may, at any time, alter, amend, suspend, discontinue, or terminate the Plan; provided that such action shall
not adversely affect the right of grantees to stock awards or stock options previously granted and no amendment, without the approval
of our stockholders, shall increase the maximum number of shares which may be awarded under the Plan in the aggregate, materially
increase the benefits accruing to grantees under the Plan, change the class of employees eligible to receive options under the
Plan, or materially modify the eligibility requirements for participation in the Plan.
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information
regarding beneficial ownership of our common stock as of March 28, 2018 (i) by each person who is known by us to beneficially
own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors
as a group. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, 923 Incline
Way #39, Incline Village, NV 89451.
Name and Address of Beneficial Owner
|
|
Title of Class
|
|
Amount
and
Nature
Of
Beneficial
Ownership
(1)
|
|
|
Percent
of
Class
(2)
|
|
Jeffery Wun, President, CEO and Director (3)
|
|
Common Stock
|
|
|
14,187,138
|
|
|
|
34.05
|
%
|
Y. Tristan Kuo, CFO (4)
|
|
Common Stock
|
|
|
137,500
|
|
|
|
*
|
|
Jan-Yung Lin, Director (5)
|
|
Common Stock
|
|
|
2,312,010
|
|
|
|
5.55
|
%
|
Colin Lim, Director (6)
|
|
Common Stock
|
|
|
20,000
|
|
|
|
*
|
|
Raymond Choy, Director (7)
|
|
Common Stock
|
|
|
20,000
|
|
|
|
*
|
|
Chih-Ming (Albert) Hsu, Director (8)
|
|
Common Stock
|
|
|
16,557
|
|
|
|
*
|
|
James Busuttil, Director (9)
|
|
Common Stock
|
|
|
20,000
|
|
|
|
*
|
|
All officers and directors as a group (7 persons named
above)
|
|
Common Stock
|
|
|
16,714,033
|
|
|
|
40.11
|
%
|
Dmedia Holding LP (10)
|
|
Common Stock
|
|
|
11,187,138
|
|
|
|
26.85
|
%
|
Well Thrive Limited (11)
|
|
Common Stock
|
|
|
8,153,053
|
|
|
|
19.57
|
%
|
* Less than 1%
(1)
|
Beneficial
Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect
to securities. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire
beneficial ownership within 60 days. Each of the beneficial owners listed above has direct ownership of and sole voting power
and investment power with respect to the shares of our common stock.
|
(2)
|
A total of 41,460,097
shares of our common stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1) as of March 28, 2018. For each
beneficial owner above, any options exercisable within 60 days have been included in the denominator.
|
(3)
|
Includes 11,187,138
shares of our common stock owned by Dmedia Holding LP. On December 20, 2017, Mr. Wun purchased an 85.7% interest
in, and was appointed Manager of, Dmedia LLC, the General Partner of Dmedia Holding LP. As such, Mr. Wun is deemed to
be the beneficial owner of the 11,187,138 shares of our common stock held by Dmedia Holding LP by virtue of his voting and
dispositive power of those shares. Through his ownership interest in Dmedia LLC which owns an approximately 6% direct
interest in Dmedia Holding LP, Mr. Wun indirectly beneficially owns 588,005 shares of our common stock held by Dmedia Holding
LP. Mr. Wun disclaims beneficial ownership of the remaining 10,599,133 shares of our common stock held by Dmedia Holding
LP. Also includes 763,400 shares of our common stock over which Mr. Wun has the voting and investment power by virtue
of his being the Trustee of the BNDD Trust which owns these shares. Mr. Wun disclaims beneficial ownership of these
763,400 shares; Mr. Shih is the beneficiary of this trust. Does not include 15,000 shares of our common stock issuable upon
the exercise of options not exercisable within 60 days.
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(4)
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Consists of 137,500
shares of our common stock which Mr. Kuo has the right to acquire within the next 60 days through the exercise of vested options
but does not include 162,500 shares of our common stock issuable upon the exercise of options not exercisable within 60 days.
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(5)
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Consists of 1,864,524
shares of our common stock owned by Mr. Lin directly and 447,486 shares of our common stock owned by Mr. Lin's spouse. Does
not include 4,796,150 shares of our common stock owned by Mr. Lin through his approximately 7% ownership interest in Dmedia
LLC and his approximately 42.4% interest Dmedia Holding LP, as Mr. Lin does not, directly or indirectly, have voting or dispositive
power over these shares although he does own a pecuniary interest in them. Does not include15,000 shares of our common
stock issuable upon the exercise of options not exercisable within the next 60 days.
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(6)
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Consists of 20,000
shares of our common stock which Mr. Lim has the right to acquire within 60 days through the exercise of vested options but
does not include 60,000 shares of our common stock issuable upon the exercise of options not exercisable within the next 60
days.
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(7)
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Consists of 20,000
shares of our common stock which Mr. Choy has the right to acquire within the next 60 days through the exercise of vested
options.
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(8)
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Consists
of 16,557 shares of our common stock owned directly by Mr. Hsu prior to his appointment
to our Board of Directors.
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(9)
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Consists of 20,000
shares of our common stock which Mr. Busuttil has the right to acquire within the next 60 days through the exercise of vested
options.
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(10)
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Mr. Wun has sole
voting and dispositive power over these shares of our common stock although he disclaims beneficial ownership of 10,599,133
of these shares. Mr. Lin owns a pecuniary interest in 4,796,150 of these shares although he does not exercise voting
or dispositive control over them. Mr. Shih owns a pecuniary interest in 4,990,291 of these shares although he does not
exercise voting or dispositive power over them. The address of Dmedia Holding LP is 91 Gregory Ln Ste 5, Pleasant Hill,
CA 94523.
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(11)
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Consists of 7,826,649
shares of common stock held by Well Thrive Limited and 326,404 shares of our common stock owned directly by Mr. Sheng-Chun
Chang. Mr. Chang is the Chief Executive Officer and owner of Well Thrive Limited and has voting and dispositive power of the
securities held by it. Mr. Chang disclaims beneficial ownership of the shares held by Well Thrive Limited. The address of
Well Thrive Limited is No 79, Heng Yang Road, Taipei City, Taiwan.
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Changes in Control.
There are currently no arrangements which
may result in a change of control of our company.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Transactions with Officers and Directors
Other than the employment agreements described
above in “Executive Compensation” and as set forth below, since the beginning of our fiscal year ended December 31,
2016, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were
or will be a party:
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●
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in which the amount
involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed
fiscal years; and
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●
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in which any director,
executive officer, stockholder who beneficially owns more than 5% of our common stock or any member of their immediate family
had or will have a direct or indirect material interest.
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On December 28, 2016, Aircom entered into
a stock purchase agreement with Ms. Irina Goldman, our sole director and officer and principal stockholder at such time, pursuant
to which Aircom purchased 700,000 shares of our common stock held by Ms. Goldman for $320,000. Such shares represented approximately
86.3% of our issued and outstanding common stock as of the closing of such acquisition by Aircom.
On February 13, 2017, we entered into
the Exchange Agreement with Aircom, our then principal stockholder, and its shareholders, whereby we acquired 100% of the issued
and outstanding capital stock of Aircom in exchange for 40,000,000 shares of our common stock and we also agreed to issue options
to acquire 5,444,592 shares of our common stock to Aircom’s option holders in exchange for their options to purchase Aircom’s
common stock. In addition, at the closing of the reverse acquisition, Aircom returned all 700,000 shares of our common stock purchased
by it on December 28, 2016 and we immediately cancelled such shares, and all existing options to purchase Aircom’s shares
of common stock were also canceled.
Our board of directors conducts an appropriate
review of and oversees all related party transactions on a continuing basis and reviews potential conflict of interest situations
where appropriate. Our board of directors has not adopted formal standards to apply when it reviews, approves or ratifies any
related party transaction. However, our board of directors generally reviews related party transactions to ensure that they are
fair and reasonable to our company and on terms comparable to those reasonably expected to be agreed to with independent third
parties for the same goods and/or services at the time they are authorized by our board of directors.
Transactions with Affiliates
On March 31, 2017, we entered into a settlement
and release agreement with Aircom and dMobile, a Taiwanese limited company whose Chairman of the Board is Daniel Shih, our co-founder,
a former material beneficial owner of our common stock and husband of our former director Barbie Shih. Aircom and dMobile entered
into a certain Purchase Agreement for Ground Station Equipment, dated as of October 15, 2014, or the Purchase Agreement, pursuant
to which Aircom delivered to dMobile certain equipment with an aggregate invoice price of $5,478,900 and received from dMobile
$2,000,000 in partial payment, as a result of which dMobile owed Aircom a balance of $3,478,900 under the Purchase Agreement.
Aircom and dMobile also entered into a certain Statement of Work, dated January 15, 2015, or the Statement of Work, pursuant to
which dMobile delivered to Aircom certain intangible property with an aggregate invoice price of $4,950,000 and received from
Aircom $1,000,000 in partial payment, as a result of which Aircom owed dMobile $3,950,000 under the Statement of Work. Offsetting
the amounts Aircom and dMobile owed to each other under the Purchase Agreement and the Statement of Work, Aircom owed dMobile
a net amount of $471,100, or the Outstanding Amount. To settle this amount, Aircom and dMobile entered into the settlement and
release agreement with respect to these matters pursuant to which (i) the Purchase Order and the Statement of Work were terminated
and dMobile agreed to accept, and we agreed to issue to dMobile, 94,220 shares of our common stock valued at $5.00 per share in
full settlement of the Outstanding Amount, or the dMobile Settlement Shares, and (ii) Aircom and dMobile each agreed to waive,
release, discharge and covenant not to sue each other with respect to any and all possible claims arising out of or relating to
the Purchase Order, the Statement of Work and the Outstanding Amount. Because Daniel Shih owns dMobile, he is the beneficial owner
of the dMobile Settlement Shares, and Barbie Shih, a former director of the Company and Mr. Shih’s wife, is thus deemed
to be the beneficial owner of the dMobile Settlement Shares.
On March 31, 2017, we entered into a settlement
and release agreement with Aircom and PPUS, a Delaware corporation of which Daniel Shih, our co-founder and husband of our former
director Barbie Shih, is the Chairman of the board of directors. Aircom and PPUS entered into a certain Development Agreement,
dated February 10, 2015, as amended by the First Amendment to Development Agreement, dated July 17, 2015 and the Second Amendment
to Development Agreement, dated August 18, 2015, or, as amended, the Development Agreement, pursuant to which Aircom and PPUS
agreed to jointly develop certain AirCinema airplane seating technology and related products. Aircom and PPUS fully performed
the specified terms of the Development Agreement with the exception that a deposit of $387,500 was advanced by PPUS to Aircom,
or the Deposit, for which the Aircom and PPUS did not reach agreement as to the scope of work to be covered by the Deposit. Additionally,
PPUS also advanced an additional deposit of $349,500, or the Additional Deposit, to Aircom with the intent that the Additional
Deposit would be applied towards one or more additional projects that Aircom and PPUS would agree to in the future. Aircom and
PPUS agreed to conclude their relationship with respect to the Development Agreement, the Deposit and the Additional Deposit and
other prior dealings between them, and to settle all accounts between them. Aircom and PPUS entered into the settlement and release
agreement with respect to these matters pursuant to which (i) the Development Agreement was deemed completed and terminated and
PPUS agreed to accept, and we agreed to issue to PPUS, 147,400 shares of our common stock valued at $5.00 per share in full settlement
of the Deposit and Additional Deposit amounts, or the PPUS Settlement Shares, and (ii) Aircom and PPUS each agreed to waive, release,
discharge and covenant not to sue each other with respect to any and all possible claims arising out of or relating to the Development
Agreement, the Deposit and the Additional Deposit. Because Daniel Shih is the Chairman of PPUS and, thus, has voting and dispositive
power over the PPUS Settlement Shares, under U.S. federal securities regulations he is deemed to be the beneficial owner of the
PPUS Settlement Shares even though he is not a shareholder of PPUS. Because Barbie Shih, a former director of the Company, is
Daniel Shih’s wife, she is deemed to be the beneficial owner of the PPUS Settlement Shares as well. Both Daniel Shih and
Barbie Shih disclaim beneficial ownership of the PPUS Settlement Shares.
On March 31, 2017, we entered into a settlement
and release agreement with Aircom and Priceplay Taiwan Inc., or PPTW, a Taiwanese limited company and parent of PPUS, its wholly
owned subsidiary. Aircom and PPTW entered into a certain purchase order, or the Purchase Order, pursuant to which PPTW agreed
to purchase from Aircom a set of mobile satellite communication equipment priced at $909,000. Pursuant to the terms of the Purchase
Order, PPTW paid Aircom $819,300, or the Initial Payment and Aircom delivered to PPTW a mobile satellite antenna, together with
radome, control unit, power supply, and other associated items, or collectively, the Equipment. PPTW raised certain issues regarding
the Equipment and informed us that it desired to return the Equipment to Aircom and to receive a refund of the Initial Payment.
Aircom and PPTW entered into the settlement and release agreement with respect to these matters pursuant to which (i) Aircom and
PPTW agreed to terminate the Purchase Order, (ii) PPTW agreed to return the Equipment to Aircom, (iii) PPTW agreed to accept,
and we agreed to issue to PPTW, 163,860 shares of our common stock valued at $5.00 per share in full settlement of the Initial
Payment amount, or the PPTW Settlement Shares, and (ii) Aircom and PPTW each agreed to waive, release, discharge and covenant
not to sue each other with respect to any and all possible claims arising out of or relating to the Purchase Order or the Initial
Payment. Because Daniel Shih is the Chairman of PPUS, under U.S. federal securities regulations he may be deemed to be an affiliate
or controlling person of PPTW, the parent of PPUS, its wholly owned subsidiary. As such Daniel Shih may be deemed to be the beneficial
owner of the PPTW Settlement Shares even though he is not a shareholder or officer or director of PPTW. Because Barbie Shih, a
former director of the Company, is Daniel Shih’s wife, she may be deemed to be the beneficial owner of the PPTW Settlement
Shares as well. Both Daniel Shih and Barbie Shih disclaim beneficial ownership of the PPTW Settlement Shares.
The three settlement and mutual release
agreements discussed above are incorporated herein by reference to Exhibits 10.13, 10.14 and 10.15.
Daniel Shih is the co-founder of Aircom
and, thus, is a “promoter” of the Company as that term is defined in Rule 405 under the Securities Act of 1933.
On July 5, 2017, we entered into a subscription
agreement with Daniel Shih, the co-founder and an affiliate of the Company, who agreed to purchase an aggregate of 5,000 shares
of our common stock, $0.001 par value per share, at a price of $5.50 per share, for an aggregate purchase of $27,500. These shares
were offered and sold by us to Mr. Shih in a private placement offering exempt from the registration requirements of the Securities
Act of 1933 by virtue of Section 4(a)(2) thereof and Regulation D promulgated thereunder, as transactions by an issuer not involving
a public offering.
Aircom Japan also leases space from Daniel
Shih at a cost of $1,215 per month. Daniel Shih’s father, Giretsu Shih, is the President of Aircom Japan and is paid an
annual salary of approximately $90,000.
Mr. Shih has relinquished “beneficial
ownership” of substantially all of his equity interests in the Company (whether held directly or indirectly) in a manner
acceptable to the Company.
Mr. Shih has also removed himself from any and all activities
relating to our business, including, but not limited to managerial, directional, advisory, promotional, developmental and fund-raising
activities
. As a result of Mr. Shih’s disposition of his equity interests in the Company and his removing himself
from participation in any Company related business activities, and Ms. Shih’s not being re-elected to the Company’s
board of directors, Mr. Shih no longer maintains any active affiliation with, or material beneficial ownership in, the Company.
In the event that Mr. Shih is exonerated
from any wrongdoing with respect to the two Taiwanese matters discussed in the Risk Factors section above, Mr. Shih’s status
as a “beneficial owner” of the shares of our common stock that he previously beneficially owned and his ability to
take an active role in the development and management of the Company may be restored.
Other Transactions
On March 9, 2015, we entered into a 10-year
purchase agreement with Klingon, pursuant to which we agreed to sell our in-flight connectivity systems to Klingon for joint development
and resale to Hong Kong based-airlines under the brand name Aircom4U. In accordance with the terms of this agreement, Klingon
agreed to purchase from us an initial order of onboard equipment comprising an onboard system for a purchase price of $909,000,
with payments to be made in accordance with a specific milestones schedule. To date, we have received $762,000 from Klingon in
milestone payments towards the equipment purchase price. Daniel Shih, our co-founder, was Chairman of Klingon from February 2015
to February 2016, and Peter Chiou, our former Chairman, former Chief Executive Officer and former President, was Chief Executive
Officer and President of Klingon from March 2015 through April 2016, prior to Peter’s joining the Company in February 2017.
Neither Mr. Shih or Mr. Chiou nor the Company owns any capital stock of Klingon. On December 30, 2017, the Company’s board
of directors by unanimous written consent appointed Mr. Jeffrey Wun as President and Chief Executive Officer of the Company, effective
December 31, 2017. Mr. Chiou, the Company’s former President and Chief Executive Officer, agreed to step down from these
positions by mutual consent, effective December 31, 2017. We expect that Mr. Chiou will become a consultant to the Company for
a short period of time and will be paid $5,000 per month effective upon his entering into consulting and separation agreement
with us.
DESCRIPTION
OF SECURITIES
The following is a summary of the rights
of our common stock and preferred stock and certain provisions of our restated articles of incorporation and our amended and restated
bylaws as they will be in effect upon the completion of this offering. This summary does not purport to be complete and is qualified
in its entirety by the provisions of our amended and restated certificate of incorporation and amended and restated bylaws.
General
As of March 28, 2018, our authorized capital
stock consisted of:
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●
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450,000,000 shares
of common stock, par value $0.001 per share; and
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50,000,000 shares
of “blank check” preferred stock, par value $0.001 per share.
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As of March 28, 2018, there were 41,460,097
shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding. All of our currently issued
and outstanding shares of capital stock were validly issued, fully paid and non-assessable under the Nevada Revised Statutes,
or Nevada Law.
On October 31, 2017, the Company completed
its private placement offering of 264,086 shares of common stock at a price of $5.50 per share for the aggregate amount of $1,452,473.
On November 27, 2017, the Company completed
its first closing of a private placement offering in which 13,400 shares of its common stock were subscribed by Daniel Shih, the
Company’s co-founder, at a price of $5.60 per share for a total of $75,040. In late March 2018, we entered into additional
subscription agreements with shareholders who agreed to purchase an aggregate of 10,000 shares of our common stock at a price
of $5.60 per share, for an aggregate purchase of $56,000. The Company is offering a total of 892,857 shares of its common stock
at a price of $5.60 per share in this offering for the aggregate amount of $5,000,000 and may conduct additional closings up to
that aggregate amount through March 31, 2018.
In connection with our private placement
that closed on June 6, 2017, we entered into subscription agreements with each of the investors, pursuant to which we agreed to
register for resale by the investors the shares purchased by them in the private placement, totaling 60,000 shares. We committed
to file the registration statement no later than September 4, 2017 and to use our commercially reasonable efforts to cause the
registration statement to become effective no later than December 3, 2017. We filed a registration statement with the SEC pursuant
to the registration rights provisions of the subscription agreements on June 26, 2017 (SEC File No. 333-218995). This registration
statement was declared effective by the SEC on September 13, 2017.
In connection with our private placement
that closed on March 31, 2017, we entered into subscription agreements with each of the investors, pursuant to which we agreed
to register for resale by the investors the shares purchased by them in the private placement, totaling 500,000 shares. We committed
to file the registration statement no later than June 29, 2017 and to use our commercially reasonable efforts to cause the registration
statement to become effective no later than September 27, 2017. We filed a registration statement with the SEC pursuant to the
registration rights provisions of the subscription agreements on June 26, 2017 (SEC File No. 333-218995). This registration statement
was declared effective by the SEC on September 13, 2017.
Set forth below is a summary description
of all of the material terms of our capital stock. This description is qualified in its entirety by reference to our restated
articles of incorporation and our amended and restated bylaws, each of which is filed as an exhibit to the registration statement,
of which this prospectus forms a part.
Common Stock
The holders of our common stock are entitled
to one vote per share on each matter submitted to a vote at a meeting of our stockholders, except to the extent that the voting
rights of our shares of any class or series of stock are determined and specified as greater or lesser than one vote per share
in the manner provided by our restated articles of incorporation. Our stockholders have no pre-emptive rights to acquire additional
shares of our common stock or other securities. Our common stock is not subject to redemption rights and carries no subscription
or conversion rights. In the event of liquidation of our company, the shares of our common stock are entitled to share equally
in corporate assets after satisfaction of all liabilities. All shares of our common stock now outstanding are fully paid and non-assessable.
Our amended and restated bylaws authorize the board of directors to declare dividends on our outstanding shares.
Preferred Stock
Our board of directors is authorized to
determine and alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series
of preferred shares, and to fix the number of shares and the designation of any series of preferred shares. Our board of directors
may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series
subsequent to the issue of those shares. The rights of the holders of common stock will be subject to and may be affected adversely
by the rights of the holders of any preferred stock that may be issued in the future. Issuance of a new series of preferred stock
could make it more difficult for a third party to acquire, or discourage a third party from acquiring, the outstanding shares
of common stock and make removal of our board of directors more difficult. No rights, preferences or privileges have yet been
determined and no shares of preferred stock have been issued.
Anti-Takeover Provisions
Provisions of the Nevada Revised Statutes
and our amended and restated bylaws could have the effect of delaying or preventing a third-party from acquiring us, even if the
acquisition would benefit our stockholders. Such provisions of Nevada Law and our amended and restated bylaws are intended to
enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated
by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of control
of our company. These provisions are designed to reduce our vulnerability to an unsolicited proposal for a takeover that does
not contemplate the acquisition of all of our outstanding shares, or an unsolicited proposal for the restructuring or sale of
all or part of our company.
Nevada Anti-Takeover Statutes
We have elected not to be governed by
the terms and provisions of Nevada’s control share acquisition laws (Nevada Revised Statutes 78.378 - 78.3793), which prohibit
an acquirer, under certain circumstances, from voting shares of a corporation’s stock after crossing specific threshold
ownership percentages, unless the acquirer obtains the approval of the issuing corporation’s stockholders. The first such
threshold is the acquisition of at least one-fifth but less than one-third of the outstanding voting power. We may become subject
to Nevada’s Control Share Acquisition Act if the company has 200 or more stockholders of record at least 100 of whom are
residents of the State of Nevada and does business in the State of Nevada directly or through an affiliated corporation. Currently,
we do not conduct business in the State of Nevada directly or through an affiliated corporation.
We have also elected not to be governed
by the terms and provisions of Nevada’s Combination with Interested Stockholders Statute (Nevada Revised Statutes 78.411
- 78.444) which prohibits an “interested stockholder” from entering into a “combination” with the corporation,
unless certain conditions are met. An “interested stockholder” is a person who, together with affiliates and associates,
beneficially owns (or within the prior three years, did beneficially own) 10 percent or more of the corporation’s voting
stock, or otherwise has the ability to influence or control such corporation’s management or policies.
Bylaws
In addition, various provisions of our
amended and restated bylaws may also have an anti-takeover effect. These provisions may delay, defer or prevent a tender offer
or takeover attempt of the company that a stockholder might consider in his or her best interest, including attempts that might
result in a premium over the market price for the shares held by our stockholders. Our amended and restated bylaws may be adopted,
amended or repealed by the affirmative vote of the holders of at least a majority of our outstanding shares of capital stock entitled
to vote for the election of directors, and except as provided by Nevada law, our board of directors shall have the power to adopt,
amend or repeal the amended and restated bylaws by a vote of not less than a majority of our directors. Any bylaw provision adopted
by the board of directors may be amended or repealed by the holders of a majority of the outstanding shares of capital stock entitled
to vote for the election of directors. Our amended and restated bylaws also contain limitations as to who may call special meetings
as well as require advance notice of stockholder matters to be brought at a meeting. Additionally, our amended and restated bylaws
also provide that no director may be removed by less than a two-thirds vote of the issued and outstanding shares entitled to vote
on the removal.
Authorized but Unissued Shares
Our authorized but unissued shares
of common stock are available for our board of directors to issue without stockholder approval. We may use these additional shares
for a variety of corporate purposes, including raising additional capital, corporate acquisitions and employee stock plans. The
existence of our authorized but unissued shares of common stock could render it more difficult or discourage an attempt to obtain
control of the company by means of a proxy context, tender offer, merger or other transaction since our board of directors can
issue large amounts of capital stock as part of a defense to a take-over challenge. In addition, we have authorized in our articles
of incorporation 50,000,000 shares of preferred stock, none of which are currently designated or outstanding. However, the Board
acting alone and without approval of our stockholders can designate and issue one or more series of preferred stock containing
super-voting provisions, enhanced economic rights, rights to elect directors, or other dilutive features, that could be utilized
as part of a defense to a take-over challenge.
Supermajority Voting Provisions
Nevada Law provides generally that
the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s articles
of incorporation or bylaws, unless a corporation’s articles of incorporation or bylaws, as the case may be, require a greater
percentage. Although our articles of incorporation and bylaws do not currently provide for such a supermajority vote on any matters,
our board of directors can amend our amended and restated bylaws and we can, with the approval of our stockholders, amend our
articles of incorporation to provide for such a super-majority voting provision.
Transfer Agent and Registrar
The transfer agent and registrar for
our common stock is VStock Transfer, LLC. The transfer agent’s address is 18 Lafayette Place, Woodmere, NY 11598, and its
telephone number is (212) 828-8436.
UNDERWRITING
We have entered into an underwriting
agreement with Boustead Securities, LLC. Subject to the terms and conditions of the underwriting agreement, the underwriter has
agreed to sell up to the number of shares of common stock at the public offering price, less the underwriting discounts and commissions,
as set forth on the cover page of this prospectus, on a best efforts basis. In addition, the underwriter has been granted an over-subscription
option pursuant to which we may sell up to an additional 15% of the total number of shares to be offered by us in this offering
if we are able to complete the maximum offering.
The underwriter is under no obligation
to purchase any shares for its own account nor may it purchase shares in order to guarantee that the offering minimum is met.
As a “best efforts” offering, there can be no assurance that the offering contemplated hereby will ultimately be consummated.
This offering will terminate on July
9, 2018 (which we refer to as the “Initial Offering Termination Date”), which date may be extended to a date up to
and including August 8, 2018 (which we refer to as the “Offering Termination Date”), unless we sell the maximum amount
of shares set forth below before that date or we decide to terminate this offering prior to that date. In the event that the maximum
amount has been met on or prior to the Offering Termination Date, the underwriter may exercise the over-subscription option on
or prior to the Offering Termination Date to extend the offering for an additional 45 days. All subscription agreements and wire
transfers should be sent to Signature Bank New York, 905 Third Avenue, 9th Floor New York, NY 10022. The gross proceeds of this
offering will be deposited at Signature Bank in an escrow account established by us until we have sold a minimum of $5,000,000
of shares. Once we satisfy the minimum offering amount, the funds will be released to us. If we decide to extend the offering
period beyond the Initial Offering Termination Date, we will seek reconfirmations from investors who have deposited funds into
the escrow account and all funds deposited by investors who do not reconfirm will be promptly returned without interest or offset.
If we do not sell a minimum of $5,000,000 of shares by the Offering Termination Date, all funds received will be promptly
returned to investors without interest or offset.
After the effective date of the
registration statement relating to this prospectus and following the filing of audited financial statements for our changed fiscal
year end ending March 31, 2018, we plan to file an application to have the shares of common stock offered hereby listed on either
the NYSE or the Nasdaq under the symbol “AKOM.” The Company expects to meet the NYSE and Nasdaq initial listing standards,
including the market value of our publicly held shares, the market value of our listed securities, the number of our publicly
held shares, the number of round lot shareholders, the number of market makers and the bid or closing price of our common stock,
upon a successful completion of this offering, although no assurance can be given that we will successfully complete this offering
or meet those standards and that our listing application will be approved. The market value of our publicly held shares (i.e.,
shares held by non-affiliated persons) already exceeds the $15 million and 1 million share minimum thresholds of both the NYSE
and the Nasdaq, and the market value of all of our listed securities currently meets both the NYSE and NASDAQ minimums of $50
million. We cannot be sure that we will be able to meet the minimum number of round lot shareholders required by the NYSE (400)
or the Nasdaq (300) if we raise only the minimum amount in this offering., and there can be no assurance that we will be able
to meet these minimum shareholder requirements even if we complete this offering having sold the maximum amount. We currently
meet the number of market makers requirements of both exchanges and we expect that we will meet the bid or closing price of our
common stock for both exchanges based on the expected range of pricing of our common stock in this offering. To meet the exchanges’
financial statement seasoning requirements, on March 18, 2018, our board of directors voted to change our fiscal year to March
31 and prepare audited financial statements for the quarter ended March 31, 2018, which, when combined with our audited financial
statements for the fiscal year ended December 31, 2017, will give us the exchange required audited financial statements for a
full fiscal year following the completion of our reverse acquisition and the filing of our Form 10 information with the SEC on
February 13, 2017. Because we will only be filing our exchange application following the filing with the SEC of our audited financial
statements for the quarter ended March 31, 2018, you may experience a delay between the closing of your purchase of our common
stock in this offering and the listing of those shares on an exchange. Furthermore, if we do not meet the exchange listing standards,
our exchange application will not be approved, and our common stock will not be able to trade on an exchange, although it will
continue to be quoted for trading on the OTCQX.
Commissions and Expenses
We have agreed to pay the underwriter
a fee, payable in cash, equal to six percent (6.0%) of the gross proceeds raised in the offering.
The underwriter proposes to offer
the shares directly to the public at the public offering price set forth on the cover of this prospectus. In addition, the underwriter
may, but is not obligated to, retain selected dealers that are qualified to offer and sell the shares and that are members of
the Financial Industry Regulatory Authority, or FINRA. After the offering to the public, the offering price and other selling
terms may be changed by the underwriter without changing the proceeds we will receive from the underwriter.
The following table summarizes the
public offering price, underwriting commissions and proceeds before expenses to us assuming completion of the minimum offering,
the maximum offering without exercise of the over-subscription option and maximum offering with exercise of the over-subscription
option. The underwriting commissions are equal to the public offering price per share less the amount per share the underwriter
pay us for the shares.
|
|
Per Share
|
|
|
Total Minimum
|
|
|
Total Maximum without Over-Subscription
Option
|
|
|
Total Maximum
with Over-Subscription
Option
|
|
Public offering price
|
|
$
|
8.50
|
|
|
$
|
5,000,000
|
|
|
$
|
60,000,000
|
|
|
$
|
69,000,000
|
|
Underwriting discounts and commissions (6.0%)
|
|
$
|
0.51
|
|
|
$
|
300,000
|
|
|
$
|
3,600,000
|
|
|
$
|
4,140,000
|
|
Proceeds, before expenses, to us
|
|
$
|
7.99
|
|
|
$
|
4,700,000
|
|
|
$
|
56,400,000
|
|
|
$
|
64,860,000
|
|
We have agreed to reimburse the underwriter
for all reasonable out-of-pocket invoiced expenses, including reasonable fees of its legal counsel in an amount not to exceed
$75,000 and costs of third-party due diligence reports in an amount not to exceed $25,000, for a total amount not to exceed $100,000.
We estimate that the total expenses of this offering, excluding underwriting commissions described above, will be approximately
$360,672. Except as disclosed in this prospectus, the underwriter has not received and will not receive from us any other item
of compensation or expense in connection with this offering considered by FINRA to be underwriting compensation under FINRA Rule
5110.
Advisory Service
Before this offering, the Underwriter
works with management to evaluate the Company's readiness for a public offering and to define their equity story. It also develops
a realistic timetable, an estimated costs summary, assists in identifying and selecting potential underwriting groups, and aids
in designing potential compensation. After this offering process starts, the Underwriter assists in developing the marketing message,
helps to create and engage outside research on the Company, advises on selecting the proper execution window, timed with the offering
schedule, and helps to create the marketing plan for this offering. When the Company approaches launch of this offering, the Underwriter
advises on valuation and appropriate offering price per share range and transaction size, accesses the potential and actual roadshow
audiences, monitors book building based on interest in subscriptions for this offering, then develops strategies for appropriate
pricing, share allocations and eventually, after-offering trading.
Upon the final closing of this offering,
the Company shall pay the underwriter an advisory fee of $100,000.
Warrants
We have agreed to issue to the underwriter
and to register herein warrants to purchase up to a total of up to 4,140,000 shares of common stock (equal to 6.0% of the aggregate
amount of securities sold in this offering assuming over-subscription option is fully exercised) and to also register herein such
underlying shares. The warrants will be exercisable at any time, and from time to time, in whole or in part, commencing from the
effective date of the offering and expiring five years from the effective date of the offering. The warrants are exercisable at
a per share price equal to 125% of the public offering price per share in the offering. The warrants have been deemed compensation
by FINRA and are therefore subject to a 180-day lock-up pursuant to FINRA Rule 5110(g)(1). The underwriter (or permitted assignees
under FINRA Rule 5110(g)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying
these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the
effective economic disposition of the warrants or the underlying securities for a period of 180 days from the effective date of
the offering, except as provided for in FINRA Conduct Rule 5110(g)(2). The exercise price and number of shares issuable upon exercise
of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, subdivision, combination,
reclassification, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances
of shares of common stock at a price below the warrant exercise price.
Subscription and Escrow Account
To purchase our shares in this offering,
investors must complete and sign a subscription agreement. All subscription agreements and wire transfers should be sent to Signature
Bank New York, 905 Third Avenue, 9th Floor New York, NY 10022. Investors will be required to pay for their shares by wire for
the full purchase price of the shares, payable to “Signature Bank, as the Escrow Agent for Aerkomm Inc.”
Subscriptions will be effective only
upon our acceptance of the subscriptions, and we reserve the right to reject any subscriptions in whole or in part. In compliance
with Rule 15c2-4 under the Exchange Act, we and the underwriter will instruct investors to deliver all monies in the form of wire
transfers to the escrow account. Upon the escrow agent’s receipt of such monies, they shall be credited to the escrow account.
Pursuant to an escrow account agency agreement among us, the underwriter and Signature Bank New York, as escrow account agent,
the funds received in payment for shares purchased in this offering will be wired to a non-interest bearing escrow account at
Signature Bank New York, New York and held until the escrow agent determines that the amount in the escrow account is equal to
at least the minimum amount required to close this offering. Upon confirmation of receipt of the requested minimum subscription
amount, the escrow agent will release the funds in accordance with the written instructions provided by us and the underwriter,
indicating the date on which the shares purchased in this offering are to be delivered to the investors and the date the net proceeds
are to be delivered to us. Unless investors instruct us otherwise, we will deliver the shares being issued to the investors electronically.
Lock-Up Agreements
We and our directors, officers and any
other 5% or greater holder of outstanding shares of our common stock (and all holders of securities exercisable for or convertible
into shares of common stock) have agreed with the underwriter not to offer for sale, issue, sell, contract to sell, encumber,
grant any option for the sale of or otherwise dispose of any of our securities, including the issuance of shares of common stock
upon currently outstanding options for a period of six (6) months after the date of this prospectus, without the prior written
consent of the underwriter.
The underwriter may in its sole discretion
and at any time without notice release some or all of the shares subject to lock-up agreements prior to the expiration of the
lock-up period. When determining whether or not to release shares from the lock-up agreements, the underwriter will consider,
among other factors, the security holder’s reasons for requesting the release, the number of shares for which the release
is being requested and market conditions at the time.
Indemnification
We have agreed to indemnify the underwriter
against liabilities relating to the offering arising under the Securities Act and the Exchange Act, liabilities arising from breaches
of some or all of the representations and warranties contained in the underwriting agreement, and to contribute to payments that
the underwriter may be required to make for these liabilities.
Similar to other purchase transactions,
the underwriter’s purchases to cover short sales may have the effect of raising or maintaining the market price of our securities
or preventing or retarding a decline in the market price of our securities. As result, the price of our securities may be higher
than the price that might otherwise exist in the open market.
The underwriter has advised us that, pursuant
to Regulation M under the Exchange Act, it may also engage in other activities that stabilize, maintain or otherwise affect the
price of our securities, including the imposition of penalty bids. The underwriter make no representation or prediction as to
the direction or magnitude of any effect that the transactions described above may have on the price of our securities. In addition,
neither we nor the underwriter make any representation that the underwriter will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
Electronic Offer, Sale and Distribution
of Shares
A prospectus in electronic format may
be made available on the websites maintained by one or more underwriter or selling group members, if any, participating in the
offering. The underwriter may agree to allocate a number of shares of securities to underwriter and selling group members for
sale to their online brokerage account holders. Internet distributions will be allocated by the representative to underwriter
and selling group members that may make internet distributions on the same basis as other allocations. Other than the prospectus
in electronic format, the information on the underwriter’s websites and any information contained in any other website maintained
by the underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part.
Other Relationships
From time to time, certain of the underwriter
and their affiliates have provided, and may provide in the future, various advisory, investment and commercial banking and other
services to us in the ordinary course of business, for which they have received and may continue to receive customary fees and
commissions. However, except as disclosed in this prospectus, we have no present arrangements with any of the underwriter for
any further services.
Offer Restrictions Outside the United
States
Other than in the United States, no action
has been taken by us or the underwriter that would permit a public offering of the securities offered by this prospectus in any
jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer
and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes
are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus.
This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus
in any jurisdiction in which such an offer or a solicitation is unlawful.
Australia
This prospectus is not a disclosure document
under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission
and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations
Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer
the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in
section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set
forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the
offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian
Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months
after its transfer to the offeree under this prospectus.
Canada
The securities may be sold in Canada only
to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument
45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National
Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must
be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities
laws. Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission
or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission
or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s
province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s
province or territory for particulars of these rights or consult with a legal advisor. Pursuant to section 3A.3 of National Instrument
33-105 Underwriting Conflicts (NI 33-105), the underwriter are not required to comply with the disclosure requirements of NI 33-105
regarding underwriter conflicts of interest in connection with this offering.
China
The information in this document does
not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China,
or PRC (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region
and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than
directly to “qualified domestic institutional investors.”
European Economic Area — Belgium,
Germany, Luxembourg and Netherlands
The information in this document has been
prepared on the basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC, or the
Prospectus Directive, as implemented in Member States of the European Economic Area (each referred to herein as a Relevant Member
State), from the requirement to produce a prospectus for offers of securities.
An offer to the public of securities has
not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus
Directive as implemented in that Relevant Member State:
(a) to legal entities
that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose
is solely to invest in securities;
(b) to any legal entity that
has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than
€43,000,000 (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover
of more than €50,000,000 (as shown on its last annual unconsolidated or consolidated financial statements);
(c) to fewer than 100 natural
or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to
obtaining the prior consent of ours or any underwriter for any such offer; or
(d) in any other circumstances
falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement
for the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive.
France
This document is not being distributed
in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning
of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq. of
the General Regulation of the French Autorité des marchés financiers, or AMF. The securities have not been offered
or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any other offering material
relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not
be distributed or caused to distributed, directly or indirectly, to the public in France. Such offers, sales and distributions
have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account,
as defined in and in accordance with Articles L.411-2-II-2 and D.411-1 to D.411-3, D. 744-1, D.754-1 and D.764-1 of the French
Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle
restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2 and
D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General
Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to
the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the
French Monetary and Financial Code.
Ireland
The information in this document does
not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish
regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within
the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005, or the Prospectus Regulations. The securities have
not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering,
except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural
or legal persons who are not qualified investors.
Israel
The securities offered by this prospectus
have not been approved or disapproved by the Israeli Securities Authority, or the ISA, nor have such securities been registered
for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication
of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing the prospectus;
nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to
the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered
by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities
laws and regulations.
Italy
The offering of the securities in the
Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Società
e la Borsa, or CONSOB) pursuant to the Italian securities legislation and, accordingly, no offering material relating to the securities
may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article
1.1(t) of Legislative Decree No. 58 of 24 February 1998, or Decree No. 58, other than:
|
●
|
to Italian qualified
investors, as defined in Article 100 of Decree no.58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May
1999, or Regulation no. 11971, as amended, or Qualified Investors; and
|
|
●
|
in other circumstances
that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No.
11971 as amended.
|
Any offer, sale or delivery of the securities
or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor solicits
an offer from the issuer) under the paragraphs above must be:
|
●
|
made by investment
firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree
No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable
laws; and
|
|
●
|
in compliance with
all relevant Italian securities, tax and exchange controls and any other applicable laws.
|
Any subsequent distribution of the securities
in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the
Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in
the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any
damages suffered by the investors.
Japan
The securities have not been and will
not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as
amended, or the FIEL, pursuant to an exemption from the registration requirements applicable to a private placement of securities
to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations
promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for
the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires
securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such
person of securities is conditional upon the execution of an agreement to that effect.
Korea
The common stock may not be offered, sold and delivered directly or indirectly,
or offered or sold to any person for reoffering or resale, directly or indirectly, in Korea or to any resident of Korea except
pursuant to the applicable laws and regulations of Korea, including the Korea Securities and Exchange Act and the Foreign Exchange
Transaction Law and the decrees and regulations thereunder. The common stock has not been registered with the Financial Services
Commission of Korea for public offering in Korea. Furthermore, the common stock may not be resold to Korean residents unless the
purchaser of the common stock complies with all applicable regulatory requirements (including but not limited to government approval
requirements under the Foreign Exchange Transaction Law and its subordinate decrees and regulations) in connection with the purchase
of the common stock.
Portugal
This document is not being distributed
in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within
the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have
not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and
any other offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities
Market Commission (Comissão do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not
be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that
are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities
in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only
such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Sweden
This document has not been, and will not
be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document
may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed
not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella
instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined
in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the
information contained in it to any other person.
Switzerland
The securities may not be publicly offered
in Switzerland and will not be listed on the SIX Swiss Exchange, or the SIX, or on any other stock exchange or regulated trading
facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses
under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art.
27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland.
Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made
publicly available in Switzerland.
Neither this document nor any other offering
material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular,
this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory
Authority.
This document is personal to the recipient
only and not for general circulation in Switzerland.
United Arab Emirates
Neither this document nor the securities
have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental
authority in the United Arab Emirates, nor have we received authorization or licensing from the Central Bank of the United Arab
Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United Arab
Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating
to the securities, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within
the United Arab Emirates by us.
No offer or invitation to subscribe for
securities is valid or permitted in the Dubai International Financial Centre.
United Kingdom
Neither the information in this document
nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United
Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended, or FSMA)
has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis
to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may
not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except
in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not
be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person
in the United Kingdom.
Any invitation or inducement to engage
in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities
has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United
Kingdom in circumstances in which section 21(1) of FSMA does not apply to us.
In the United Kingdom, this document is
being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments
falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions)
Order 2005, or the FPO, (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth
companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together
referred to as relevant persons). The investments to which this document relates are available only to, and any invitation, offer
or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act
or rely on this document or any of its contents.
LEGAL
MATTERS
The validity of the shares of common stock covered by this
prospectus will be passed upon by Sherman & Howard LLC.
Certain legal matters will be passed upon
for the underwriter by Mei & Mark LLP.
EXPERTS
The consolidated audited financial statements
of Aerkomm Inc. as of December 31, 2017, 2016 and 2015 appearing in this prospectus and registration statement have been audited
by Chen & Fan Accountancy Corporation, an independent registered public accounting firm, as stated in their report appearing
herein. Such consolidated financial statements have been so included in reliance upon the report of such firm given upon its authority
as an expert in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration
statement on Form S-1 under the Securities Act with respect to the shares of common stock offered by this prospectus. This prospectus,
which constitutes a part of the registration statement, does not contain all of the information set forth in the registration
statement, some of which is contained in exhibits to the registration statement as permitted by the rules and regulations of the
SEC. For further information with respect to us and our common stock, we refer you to the registration statement, including the
exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any
contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration
statement, please see the copy of the contract or document that has been filed. Each statement in this prospectus relating to
a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. You may obtain copies of this information
by mail from the public reference room of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates.
You may obtain information on the operation of the public reference rooms by calling the SEC at 1(800) SEC-0330. The SEC also
maintains an Internet website that contains reports, proxy statements and other information about issuers, like us, that file
electronically with the SEC. The address of that website is www.sec.gov.
We file periodic reports, proxy statements
and other information with the SEC. These periodic reports, proxy statements and other information are available for inspection
and copying at the SEC’s public reference facilities and the website of the SEC referred to above. We also maintain a website
at www.aerkomm.com. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of
charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained
on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual
reference only.
FINANCIAL STATEMENTS
AERKOMM INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
TABLE OF CONTENTS
Chen
& Fan
ACCOUNTANCY
CORPORATION
2480 North First Street, Suite 280
San Jose, California 95131
Telephone (408) 432-1218
Facsimile (408) 432-1212
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
AERKOMM INC.
Opinion on the Consolidated Financial
Statements
We have audited the accompanying consolidated
balance sheets of AERKOMM INC. AND SUBSIDIARIES (the “Company”) as of December 31, 2017 and 2016, the related consolidated
statements of operations and comprehensive loss, changes in equity, and cash flows for each of the three years in the period ended
December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company has suffered recurring loss from operations that raises substantial doubt about its ability
to continue as a going concern. Management’s plans in regard to this matter are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As
part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Chen & Fan Accountancy
We have served as the Company’s
auditor since 2017.
San Jose, California
March 12, 2018
AERKOMM INC. AND
SUBSIDIARIES
Consolidated Balance Sheets
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Assets
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
21,504
|
|
|
$
|
312,173
|
|
Inventories
|
|
|
208,674
|
|
|
|
209,729
|
|
Prepaid expenses
|
|
|
543,642
|
|
|
|
11,784
|
|
Other receivable - related party
|
|
|
46,743
|
|
|
|
-
|
|
Other receivable - others
|
|
|
412,390
|
|
|
|
891
|
|
Other current assets
|
|
|
6,591
|
|
|
|
-
|
|
Total Current Assets
|
|
|
1,239,544
|
|
|
|
534,577
|
|
Property and Equipment
|
|
|
|
|
|
|
|
|
Cost
|
|
|
405,319
|
|
|
|
128,917
|
|
Accumulated depreciation
|
|
|
(100,592
|
)
|
|
|
(43,825
|
)
|
|
|
|
304,727
|
|
|
|
85,092
|
|
Construction in progress
|
|
|
3,250,000
|
|
|
|
3,660,000
|
|
Net Property and Equipment
|
|
|
3,554,727
|
|
|
|
3,745,092
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Intangible asset, net
|
|
|
3,877,500
|
|
|
|
4,372,500
|
|
Goodwill
|
|
|
1,450,536
|
|
|
|
1,105,942
|
|
Deposits - related party
|
|
|
2,396
|
|
|
|
4,966
|
|
Deposits – others
|
|
|
141,273
|
|
|
|
801,405
|
|
Total Other Assets
|
|
|
5,471,705
|
|
|
|
6,284,813
|
|
Total Assets
|
|
$
|
10,265,976
|
|
|
$
|
10,564,482
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term bank loan
|
|
$
|
10,000
|
|
|
$
|
-
|
|
Accrued expenses
|
|
|
637,675
|
|
|
|
71,978
|
|
Other payable - related parties
|
|
|
1,082,395
|
|
|
|
2,955,575
|
|
Other payable - others
|
|
|
2,081,787
|
|
|
|
1,671,269
|
|
Total Current Liabilities
|
|
|
3,811,857
|
|
|
|
4,698,822
|
|
Restricted stock deposit liability
|
|
|
56
|
|
|
|
3,342
|
|
Total Liabilities
|
|
|
3,811,913
|
|
|
|
4,702,164
|
|
Commitments and Contingency
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Preferred stock, no par value, as of December 31, 2017
and 2016, 10,000,000 shares authorized, none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Preferred stock, $0.001 par value, as of December 31, 2017, 50,000,000
shares authorized, none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, no par value. Authorized - 210,000,000
shares. Issued and outstanding - 98,720,060 (excluding 6,683,340 unvested restricted shares) as of December 31, 2016
|
|
|
-
|
|
|
|
4,470,839
|
|
Common stock, $0.001 par value. Authorized - 450,000,000 shares. Issued
and outstanding – 41,418,665 (excluding 41,432 unvested restricted shares) as of December 31, 2017
|
|
|
41,418
|
|
|
|
-
|
|
Additional paid in capital
|
|
|
13,484,857
|
|
|
|
80,000
|
|
Subscribed capital
|
|
|
75,040
|
|
|
|
1,862,643
|
|
Accumulated deficits
|
|
|
(7,143,788
|
)
|
|
|
(551,204
|
)
|
Accumulated other comprehensive
loss
|
|
|
(3,464
|
)
|
|
|
(10
|
)
|
Total Stockholders’ Equity
|
|
|
6,454,063
|
|
|
|
5,862,268
|
|
Non-controlling interest
in subsidiary
|
|
|
-
|
|
|
|
50
|
|
Total Equity
|
|
|
6,454,063
|
|
|
|
5,862,318
|
|
Total Liabilities and Equity
|
|
$
|
10,265,976
|
|
|
$
|
10,564,482
|
|
The accompanying notes are an integral
part of the consolidated financial statements.
AERKOMM INC. AND
SUBSIDIARIES
Consolidated Statements of Operations
and Comprehensive Loss
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,128,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
-
|
|
|
|
-
|
|
|
|
1,337,905
|
|
Operating expenses
|
|
|
7,147,597
|
|
|
|
3,970,105
|
|
|
|
1,235,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost and Expenses
|
|
|
7,147,597
|
|
|
|
3,970,105
|
|
|
|
2,573,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations
|
|
|
(7,147,597
|
)
|
|
|
(3,970,105
|
)
|
|
|
3,555,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Non-Operating Income (Loss)
|
|
|
23,652
|
|
|
|
(89,559
|
)
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Income Taxes
|
|
|
(7,123,945
|
)
|
|
|
(4,059,664
|
)
|
|
|
3,555,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense (Benefit)
|
|
|
8,519
|
|
|
|
(883,200
|
)
|
|
|
884,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
(7,132,464
|
)
|
|
|
(3,176,464
|
)
|
|
|
2,670,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Income (Loss) Attributed
to Non-Controlling Interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to the Company
|
|
|
(7,132,464
|
)
|
|
|
(3,176,464
|
)
|
|
|
2,670,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation
adjustments
|
|
|
(3,454
|
)
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income (Loss)
|
|
$
|
(7,135,918
|
)
|
|
$
|
(3,176,474
|
)
|
|
$
|
2,670,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.1748
|
)
|
|
$
|
(0.0808
|
)
|
|
$
|
0.0841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.1748
|
)
|
|
$
|
(0.0808
|
)
|
|
$
|
0.0759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding - Basic
|
|
|
40,821,495
|
|
|
|
39,335,796
|
|
|
|
31,752,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding - Diluted
|
|
|
40,821,495
|
|
|
|
39,335,796
|
|
|
|
35,190,236
|
|
The accompanying notes are an integral
part of the consolidated financial statements.
AERKOMM INC. AND
SUBSIDIARIES
Consolidated Statements of Changes in
Equity
|
|
Common
Stock
|
|
|
Additional
Paid
in
|
|
|
Subscribed
|
|
|
Retained
Earnings (Accumulated
|
|
|
Accumulated
Other Comprehensive
|
|
|
Total
Stockholders’
Equity
(Capital
|
|
|
Non
Controlling
Interest in
|
|
|
Total
Equity
(Capital
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Capital
|
|
|
Deficits)
|
|
|
Loss
|
|
|
Deficiency)
|
|
|
Subsidiary
|
|
|
Deficiency)
|
|
Balance as of January 1, 2015
|
|
|
6,000,000
|
|
|
$
|
10,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(45,154
|
)
|
|
$
|
-
|
|
|
$
|
(35,154
|
)
|
|
$
|
-
|
|
|
$
|
(35,154
|
)
|
Issuance of common stock
|
|
|
343,673
|
|
|
|
850,001
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
850,001
|
|
|
|
-
|
|
|
|
850,001
|
|
Issuance of stock warrant
|
|
|
-
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
20,000
|
|
Restricted stock vested
and transferred to common stock
|
|
|
1,231,667
|
|
|
|
6,159
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,159
|
|
|
|
-
|
|
|
|
6,159
|
|
Net
income for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,670,414
|
|
|
|
-
|
|
|
|
2,670,414
|
|
|
|
-
|
|
|
|
2,670,414
|
|
Balance as of December 31, 2015
|
|
|
7,575,340
|
|
|
|
866,160
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
2,625,260
|
|
|
|
-
|
|
|
|
3,511,420
|
|
|
|
-
|
|
|
|
3,511,420
|
|
Issuance of common stock
|
|
|
1,440,000
|
|
|
|
3,600,395
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,600,395
|
|
|
|
-
|
|
|
|
3,600,395
|
|
Issuance of stock warrant
|
|
|
-
|
|
|
|
-
|
|
|
|
40,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,000
|
|
|
|
-
|
|
|
|
40,000
|
|
Subscribed capital
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,862,643
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,862,643
|
|
|
|
-
|
|
|
|
1,862,643
|
|
Additional shares issued
on stock split
|
|
|
81,138,060
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Restricted stock vested
and transferred to common stock
|
|
|
8,566,660
|
|
|
|
4,284
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,284
|
|
|
|
-
|
|
|
|
4,284
|
|
Stock compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
20,000
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,176,464
|
)
|
|
|
-
|
|
|
|
(3,176,464
|
)
|
|
|
-
|
|
|
|
(3,176,464
|
)
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
(10
|
)
|
Non-controlling
interest in subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50
|
|
|
|
50
|
|
Balance as of December 31, 2016
|
|
|
98,720,060
|
|
|
|
4,470,839
|
|
|
|
80,000
|
|
|
|
1,862,643
|
|
|
|
(551,204
|
)
|
|
|
(10
|
)
|
|
|
5,862,268
|
|
|
|
50
|
|
|
|
5,862,318
|
|
Reverse acquisition
|
|
|
(61,101,458
|
)
|
|
|
(4,433,221
|
)
|
|
|
5,756,024
|
|
|
|
(1,862,643
|
)
|
|
|
539,880
|
|
|
|
10
|
|
|
|
50
|
|
|
|
(50
|
)
|
|
|
-
|
|
Issuance of common stock
|
|
|
1,349,247
|
|
|
|
1,349
|
|
|
|
5,838,551
|
|
|
|
(1,452,473
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,387,427
|
|
|
|
-
|
|
|
|
4,387,427
|
|
Issuance of stock warrant
|
|
|
-
|
|
|
|
-
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
60,000
|
|
Subscribed capital
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,527,513
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,527,513
|
|
|
|
-
|
|
|
|
1,527,513
|
|
Restricted stock vested
and transferred to common stock
|
|
|
2,450,816
|
|
|
|
2,451
|
|
|
|
836
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,287
|
|
|
|
-
|
|
|
|
3,287
|
|
Stock compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
1,749,446
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,749,446
|
|
|
|
-
|
|
|
|
1,749,446
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,132,464
|
)
|
|
|
-
|
|
|
|
(7,132,464
|
)
|
|
|
-
|
|
|
|
(7,132,464
|
)
|
Other
comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,464
|
)
|
|
|
(3,464
|
)
|
|
|
-
|
|
|
|
(3,464
|
)
|
Balance as of December 31,
2017
|
|
|
41,418,665
|
|
|
$
|
41,418
|
|
|
$
|
13,484,857
|
|
|
$
|
75,040
|
|
|
$
|
(7,143,788
|
)
|
|
$
|
(3,464
|
)
|
|
$
|
6,454,063
|
|
|
$
|
-
|
|
|
$
|
6,454,063
|
|
The accompanying notes are an integral
part of the consolidated financial statements.
AERKOMM INC. AND
SUBSIDIARIES
Consolidated Statements of Cash Flows
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(7,132,464
|
)
|
|
$
|
(3,176,464
|
)
|
|
$
|
2,670,414
|
|
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
551,767
|
|
|
|
526,460
|
|
|
|
94,444
|
|
Stock-based compensation
|
|
|
1,749,446
|
|
|
|
20,000
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable - related party
|
|
|
-
|
|
|
|
3,478,900
|
|
|
|
(3,478,900
|
)
|
Inventories
|
|
|
1,055
|
|
|
|
(97,674
|
)
|
|
|
(111,000
|
)
|
Prepaid expenses
|
|
|
(521,949
|
)
|
|
|
116,327
|
|
|
|
25,066
|
|
Other receivable - related party
|
|
|
162,335
|
|
|
|
116,180
|
|
|
|
(116,180
|
)
|
Other receivable - others
|
|
|
(318
|
)
|
|
|
11,258
|
|
|
|
-
|
|
Deposits - related party
|
|
|
2,570
|
|
|
|
(4,966
|
)
|
|
|
-
|
|
Deposits - others
|
|
|
660,132
|
|
|
|
(382,534
|
)
|
|
|
(389,320
|
)
|
Accrued expenses
|
|
|
506,822
|
|
|
|
(59,940
|
)
|
|
|
131,918
|
|
Other payable - related party
|
|
|
(2,373,180
|
)
|
|
|
(1,638,890
|
)
|
|
|
3,224,263
|
|
Other payable - others
|
|
|
392,299
|
|
|
|
(133,759
|
)
|
|
|
1,043,737
|
|
Net Cash Provided by (Used for)
Operating Activities
|
|
|
(6,001,485
|
)
|
|
|
(1,225,102
|
)
|
|
|
3,094,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid investment
|
|
|
-
|
|
|
|
-
|
|
|
|
(700,000
|
)
|
Purchase of property and equipment
|
|
|
(273,015
|
)
|
|
|
(3,686,597
|
)
|
|
|
(78,508
|
)
|
Acquisitions of intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,950,000
|
)
|
Acquisitions of goodwill
|
|
|
-
|
|
|
|
(319,688
|
)
|
|
|
-
|
|
Net Cash Used for Investing Activities
|
|
|
(273,015
|
)
|
|
|
(4,006,285
|
)
|
|
|
(5,728,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term bank loan
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from issuance of common stock
|
|
|
4,387,428
|
|
|
|
3,600,395
|
|
|
|
864,452
|
|
Proceeds from subscribed capital
|
|
|
1,527,513
|
|
|
|
1,862,643
|
|
|
|
-
|
|
Issuance of stock warrant
|
|
|
60,000
|
|
|
|
40,000
|
|
|
|
-
|
|
Payments on repurchase of unvested restricted stock
|
|
|
-
|
|
|
|
(666
|
)
|
|
|
-
|
|
Contribution from non-controlling
interest in subsidiary
|
|
|
-
|
|
|
|
50
|
|
|
|
-
|
|
Net Cash Provided by Financing
Activities
|
|
|
5,984,941
|
|
|
|
5,502,422
|
|
|
|
864,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash
|
|
|
(289,559
|
)
|
|
|
271,035
|
|
|
|
(1,769,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from acquired subsidiaries
|
|
|
2,354
|
|
|
|
21,650
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, Beginning of Year
|
|
|
312,173
|
|
|
|
19,498
|
|
|
|
1,789,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation effect
on cash
|
|
|
(3,464
|
)
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, End of Year
|
|
$
|
21,504
|
|
|
$
|
312,173
|
|
|
$
|
19,498
|
|
The accompanying notes are an integral
part of the consolidated financial statements.
AERKOMM INC. AND
SUBSIDIARIES
Consolidated Statements of Cash Flows
- Continued
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid during the
year for income taxes
|
|
$
|
6,239
|
|
|
$
|
800
|
|
|
$
|
-
|
|
Cash paid during the year for
interest
|
|
$
|
131
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash operating, investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress transferred
to other receivable
|
|
$
|
410,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Restricted stock deposit liability
transferred to common stock
|
|
$
|
3,287
|
|
|
$
|
4,284
|
|
|
$
|
6,159
|
|
Other payable to related parties
transferred to common stock
|
|
$
|
2,027,400
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payment for acquisition of subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5,704
|
|
|
$
|
21,650
|
|
|
$
|
-
|
|
Inventories
|
|
|
-
|
|
|
|
1,055
|
|
|
|
-
|
|
Prepaid expenses
|
|
|
16,500
|
|
|
|
2,784
|
|
|
|
-
|
|
Other receivable – related party
|
|
|
210,259
|
|
|
|
-
|
|
|
|
|
|
Other receivable – others
|
|
|
-
|
|
|
|
12,149
|
|
|
|
-
|
|
Property and equipment, net
|
|
|
5,152
|
|
|
|
6,642
|
|
|
|
-
|
|
Goodwill
|
|
|
344,594
|
|
|
|
1,105,942
|
|
|
|
-
|
|
Other assets
|
|
|
-
|
|
|
|
20,959
|
|
|
|
-
|
|
Accrued expenses
|
|
|
(60,640
|
)
|
|
|
-
|
|
|
|
-
|
|
Other payable
|
|
|
(518,219
|
)
|
|
|
(151,131
|
)
|
|
|
-
|
|
Non-controlling interest
|
|
|
-
|
|
|
|
(50
|
)
|
|
|
-
|
|
Total payment for acquisition of subsidiaries
|
|
|
3,350
|
|
|
|
1,020,000
|
|
|
|
-
|
|
Transferred from prepaid investment
|
|
|
-
|
|
|
|
(700,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payment for acquisition of subsidiaries
|
|
$
|
3,350
|
|
|
$
|
320,000
|
|
|
$
|
-
|
|
The accompanying notes are an integral
part of the consolidated financial statements.
AERKOMM INC. AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2017, 2016 and
2015
NOTE 1 -
Organization
Aerkomm Inc. (formerly Maple
Tree Kids Inc.) (“Aerkomm”) was incorporated on August 14, 2013 in the State of Nevada. Aerkomm was a retail distribution
company selling all of its products over the internet in the United States, operating in the infant and toddler products business
market.
On December 28, 2016, Aircom
Pacific Inc. (“Aircom”) purchased 700,000 shares of Aerkomm’s common stock, representing approximately 86.3%
of Aerkomm’s issued and outstanding common stock as of the closing date of purchase. As a result of the transaction, Aircom
became the controlling shareholder of Aerkomm.
On February 13, 2017, Aerkomm
entered into a share exchange agreement (“Exchange Agreement”) with Aircom and its shareholders, pursuant to which
Aerkomm acquired 100% of the issued and outstanding capital stock of Aircom in exchange for approximately 99.7% of the issued
and outstanding capital stock of Aerkomm (or 87.81% on a fully-diluted basis). As a result of the share exchange, Aircom became
a wholly-owned subsidiary of Aerkomm, and the former shareholders of Aircom became the holders of approximately 99.7% of Aerkomm’s
issued and outstanding capital stock.
Aircom was incorporated on September
29, 2014 under the laws of the State of California.
On December 31, 2014, Aircom
acquired a newly incorporated subsidiary, Aircom Pacific Ltd. (“Aircom Seychelles”), a corporation formed under the
laws of the Republic of Seychelles. Aircom Seychelles was formed to facilitate Aircom’s global corporate structure for both
business operations and tax planning. Presently, Aircom Seychelles has no operations. Aircom is working with corporate and tax
advisers in finalizing its global corporate structure and has not yet concluded its final plan.
On October 17, 2016, Aircom
acquired a wholly owned subsidiary, Aircom Pacific Inc. Limited (“Aircom HK”), a corporation formed under the laws
of Hong Kong. The purpose of Aircom HK is to conduct Aircom’s business and operations in Hong Kong and China. Presently,
its primary function is business development, both with respect to airlines as well as content providers and advertisement partners
based in Hong Kong and China. Aircom HK is also actively seeking strategic partnerships whom Aircom may leverage in order to provide
more and better services to its customers. Aircom also plans to provide local supports to Hong Kong-based airlines via Aircom
HK and teleports located in the Hong Kong and China regions.
On December 15, 2016, Aircom
acquired a wholly owned subsidiary, Aircom Japan, Inc. (“Aircom Japan”), a corporation formed under the laws of Japan.
The purpose of Aircom Japan is to conduct business development and operations located within Japan. Aircom Japan is in the process
of applying for, and will be the holder of, Satellite Communication Blanket License in Japan, which is necessary for Aircom to
provide services within Japan. Aircom Japan will also provide local supports to airlines operating within the territory of Japan.
Aircom Telecom LLC (“Aircom
Taiwan”), which became a wholly owned subsidiary of Aircom in December 2017, was organized under the laws of Taiwan on June
29, 2016. During 2017, Aircom advanced a total of $460,000 to Aircom Taiwan, which was not affiliated with Aircom during that
time, for working capital, as part of a planned $1,500,000 aggregate equity investment (the “Equity Investment”) in
Aircom Taiwan. Before Aircom Taiwan was allowed to issue equity to Aircom, a foreign investor, the Equity Investment must be approved
by the Investment Review Committee of the Ministry of Economic affairs of Taiwan (the “Committee”). Aircom entered
into an Equity Pre-Subscription Agreement with Aircom Taiwan on August 13, 2017 to memorialize the terms of the Equity Investment.
On December 19, 2017, the Committee approved Aircom’s initial Equity Investment (valued as of that date at NT$15,150,000,
or approximately US$500,000) and the purchase of the founding owner’s total equity of NT$100,000 (approximately US$3,350).
As a result, Aircom Taiwan became a wholly owned subsidiary of Aircom.
Aircom Taiwan is responsible
for Aircom’s business development efforts and general operations within Taiwan. We are currently planning to locate
the site of our first ground station in Taiwan and we expect that if we raise sufficient funds to move forward with this project
(although that cannot be guaranteed), Aircom Taiwan will play a significant role in building and operating that ground station.
Aircom and its subsidiaries
are full service providers of in-flight entertainment and connectivity solutions with their initial market in the Asian Pacific
region.
Aerkomm and its subsidiaries
(“the Company”) have not generated significant revenues, excluding non-recurring revenues from affiliates in 2015,
and will incur additional expenses as a result of being a public reporting company. If the Company is unable to obtain additional
working capital, the Company’s business may fail. As of December 31, 2017, the Company incurred a comprehensive loss of
$7,135,918 and had working capital deficiency of $2,572,313, which raises substantial doubt about its ability to continue as a
going concern. Currently, the Company has taken measures that management believes will improve its financial position by financing
activities, short-term borrowings and equity contributions.
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- Continued
Years Ended December 31, 2017, 2016 and
2015
NOTE 2 -
Summary of Significant Accounting Policies
Reverse Acquisition
On February 13, 2017, Aerkomm
completed the reverse acquisition of Aircom pursuant to the Exchange Agreement. As a result of the reverse acquisition, Aircom
became Aerkomm’s wholly-owned subsidiary. For accounting purposes, the share exchange transaction with Aircom was treated
as a reverse acquisition, with Aircom as the acquirer and Aerkomm as the acquired party. Unless the context suggests otherwise,
“the Company” referred to for the periods prior to the consummation of the reverse acquisition is Aircom and its consolidated
subsidiaries.
Principle of Consolidation
Aerkomm consolidates the accounts
of its subsidiaries, Aircom, Aircom Seychelles, Aircom HK, Aircom Japan and Aircom Taiwan. All significant intercompany accounts
and transactions have been eliminated in consolidation.
All of the entities in these
consolidated financial statements have adopted fiscal year-end of December 31.
Reclassifications of Prior
Year Presentation
Certain prior year balance sheet
amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the
reported results of operations.
Use of Estimates
The preparation of consolidated
financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
Actual results may differ from these estimates.
Concentrations of Credit
Risk
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist primarily of cash in banks and accounts receivable. As
of December 31, 2017, 2016, and 2015, the total balances of cash in bank were insured by the Federal Deposit Insurance Corporation
(FDIC) and foreign financial institution deposits insurance.
The Company performs ongoing
credit evaluation of its customers and requires no collateral. An allowance for doubtful accounts is provided based on a review
of the collectability of accounts receivable. The Company determines the amount of allowance for doubtful accounts by examining
the historical collection experience as well as its internal credit policies.
The Company conducts extensive
transactions with its related parties. Revenue for the year ended December 31, 2015 was solely from related parties.
Inventories
Inventories are recorded at
the lower of weighted-average cost or net realizable value. The Company assesses the impact of changing technology on its inventory
on hand and writes off inventories that are considered obsolete. Estimated losses on scrap and slow-moving items are recognized
in the allowance for losses.
Property and Equipment
Property and equipment are stated
at cost less accumulated depreciation. When value impairment is determined, the related assets are stated at the lower of fair
value or book value. Significant additions, renewals and betterments are capitalized. Maintenance and repairs are expensed as
incurred.
Depreciation is computed by
using the straight-line and double declining method over the following estimated service lives: computer equipment - 3 to 5 years,
furniture and fixtures - 5 years and satellite equipment – 5 years.
Construction costs for on-flight
entertainment equipment not yet in service are recorded under construction in progress.
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- Continued
Years Ended December 31, 2017, 2016 and
2015
NOTE 2 - Summary of Significant Accounting
Policies - Continued
Property and Equipment -
continued
Upon sale or disposal of property
and equipment, the related cost and accumulated depreciation are removed from the corresponding accounts, with any gain or loss
credited or charged to income in the period of sale or disposal.
The Company reviews the carrying
amount of property and equipment for impairment when events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. It determined that there was no impairment loss for each of the years in the three-year period
ended December 31, 2017.
Goodwill and Purchased Intangible
Assets
The Company’s goodwill
represents the amount by which the total purchase price paid exceeded the estimated fair value of net assets acquired from acquisition
of subsidiaries. The Company tests goodwill for impairment on an annual basis, or more often if events or circumstances indicate
that there may be impairment.
Purchased intangible assets
with finite life are amortized on the straight-line basis over the estimated useful lives of respective assets. Purchased intangible
assets with indefinite life are evaluated for impairment when events or changes in circumstances indicate that the carrying amount
of such assets may not be recoverable. Purchased intangible asset consists of satellite system software and is amortized over
10 years.
Fair Value of Financial Instruments
The Company utilizes the three-level
valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities
within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three
levels of the hierarchy consist of the following:
Level 1 - Inputs to the valuation
methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability
to access at the measurement date.
Level 2 - Inputs to the valuation
methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active
or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the
instrument.
Level 3 - Inputs to the valuation
methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing
the asset or liability at the measurement date, including assumptions.
The carrying amounts of the
Company’s cash, other receivable, short-term bank loan and other payable approximated their fair value due to the short-term
nature of these financial instruments.
Revenue Recognition
The Company recognizes sales
when the earning process is completed, as evidenced by an arrangement with the customer, transfer of title and acceptance, if
applicable, has occurred, as well as the price is fixed or determinable, and collection is reasonably assured.
Research and Development
Costs
Research and development costs
are charged to operating expenses as incurred. For the years ended December 31, 2017, 2016 and 2015, the Company incurred approximately
$336,000, $1,597,000 and $25,000 of research and development costs, respectively.
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- Continued
Years Ended December 31, 2017, 2016 and
2015
NOTE 2 - Summary of Significant Accounting
Policies - Continued
Income Taxes
Income taxes are accounted for
under the asset and liability method. Deferred tax assets and liabilities are computed for differences between the financial statement
and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable
for the period plus or minus the change during the period in deferred tax assets and liabilities. Adjustments to prior period’s
income tax liabilities are added to or deducted from the current period’s tax provision.
The Company follows FASB guidance
on uncertain tax positions and has analyzed its filing positions in all the federal, state and foreign jurisdictions where it
is required to file income tax returns, as well as all open tax years in those jurisdictions. The Company files income tax returns
in the US federal, state and foreign jurisdictions where it conducts business. The Company believes that its income tax filing
positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse
effect on its consolidated financial position, results of operations, or cash flows. Therefore, no reserves for uncertain tax
positions have been recorded. The Company does not expect its unrecognized tax benefits to change significantly over the next
twelve months.
The Company’s policy for
recording interest and penalties associated with any uncertain tax positions is to record such items as a component of income
before taxes. Penalties and interest paid or received, if any, are recorded as part of other operating expenses in the consolidated
statement of operations.
Translation Adjustments
If a foreign subsidiary’s
functional currency is the local currency, translation adjustments will result from the process of translating the subsidiary’s
financial statements into the reporting currency of the Company. Such adjustments are accumulated and reported under other comprehensive
income (loss) as a separate component of stockholder’s equity.
Earnings (Loss) Per Share
Basic earnings (loss) per share
is computed by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average
number of shares of common outstanding during the period increased to include the number of additional shares of common stock
that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include
stock warrants and outstanding stock options, shares to be purchased by employees under the Company’s employee stock purchase
plan. Basic and diluted earnings (loss) per common share presented for the years ended December 31, 2017, 2016 and 2015 have taken
into account the stock split in June 2016 and share exchange for reverse acquisition on February 13, 2017 (see Note 1).
Subsequent Events
The Company has evaluated events
and transactions after the reported year-end up to March 12, 2018, the date on which these consolidated financial statements were
available to be issued. All subsequent events requiring recognition as of December 31, 2017 have been included in these consolidated
financial statements.
NOTE 3 - Recent Accounting Pronouncements
Financial Instruments
In January 2016, the FASB issued
ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities” (“ASU 2016-01”), which updates certain aspects of recognition, measurement, presentation
and disclosure of financial instruments. ASU 2016-01 will be effective for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2016-01 on its consolidated
financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments
- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which modifies
the measurement of expected credit losses of certain financial instruments. ASU 2016-13 will be effective for fiscal years beginning
after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of
adopting ASU 2016-13 on its consolidated financial statements.
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- Continued
Years Ended December 31, 2017, 2016 and
2015
NOTE 3 - Recent Accounting Pronouncements
- Continued
Intangibles
In January 2017, the FASB issued
ASU No. 2017-04, “Intangibles - Goodwill and Other” (Topic 350): Simplifying the Test for Goodwill Impairment, which
goodwill shall be tested at least annually for impairment at a level of reporting referred to as a reporting unit. ASU 2017-04
will be effective for annual periods beginning after December 15, 2019. The Company is currently evaluating the impact of adopting
ASU 2017-04 on its consolidated financial statements.
Leases
In February 2016, the FASB issued
ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”), which modifies lease accounting for both lessees
and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those
leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements.
ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years, and early adoption is permitted. The Company is currently evaluating the timing of its adoption and the impact of adopting
ASU 2016-02 on its consolidated financial statements.
Revenue Recognition
In May 2014, the FASB issued
ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) (“ASU 2014-09”), which amends the
existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue
at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 will be effective for annual
periods beginning after December 15, 2017, and interim periods within that reporting period.
Subsequently, the FASB issued
the following standards related to ASU 2014-09: ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal
versus Agent Considerations” (“ASU 2016-08”); ASU No. 2016-10, “Revenue from Contracts with Customers”
(Topic 606): Identifying “Performance Obligations and Licensing” (“ASU 2016-10”); and ASU No. 2016-12,
“Revenue from Contracts with Customers” (Topic 606): “Narrow-Scope Improvements and Practical Expedients”
(“ASU 2016-12”). The Company must adopt ASU 2016-08, ASU 2016-10 and ASU 2016-12 with ASU 2014-09 (collectively, the
“new revenue standards”).
The new revenue standards may
be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date
of adoption. The Company currently expects to adopt the new revenue standards in its first quarter of 2018 utilizing either a
retrospective basic or modified retrospective basic method. The Company is currently evaluating the impact of adopting the new
revenue standards on its consolidated financial statements.
Income Taxes
In October 2016, FASB issued
ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory” (“ASU 2016-16”),
which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when
the transfer occurs. ASU 2016-06 will be effective for annual reporting periods beginning after December 15, 2017 and for the
Company in its first quarter of 2018. The Company is currently evaluating the impact of adopting ASU 2016-16 on its consolidated
financial statements.
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- Continued
Years Ended December 31, 2017, 2016 and
2015
NOTE 4 - Inventories
As of December 31, 2017, and
2016, inventories consisted of the following:
|
|
|
December
31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Satellite equipment for sale under construction
|
|
$
|
197,645
|
|
|
$
|
197,645
|
|
|
Parts
|
|
|
11,029
|
|
|
|
11,029
|
|
|
Supplies
|
|
|
5,540
|
|
|
|
6,437
|
|
|
|
|
|
214,214
|
|
|
|
215,111
|
|
|
Allowance for inventory loss
|
|
|
(5,540
|
)
|
|
|
(5,382
|
)
|
|
Net
|
|
$
|
208,674
|
|
|
$
|
209,729
|
|
NOTE 5 - Property and Equipment
For the years ended December
31, 2017 and 2016, the changes in cost of property and equipment were as follows:
|
|
|
Computer
software and
equipment
|
|
|
Furniture and fixture
|
|
|
Satellite
Equipment
|
|
|
Total
|
|
|
January 1, 2016
|
|
|
92,285
|
|
|
|
3,393
|
|
|
|
-
|
|
|
|
95,678
|
|
|
Addition
|
|
|
26,626
|
|
|
|
6,613
|
|
|
|
-
|
|
|
|
33,239
|
|
|
December 31, 2016
|
|
|
118,911
|
|
|
|
10,006
|
|
|
|
-
|
|
|
|
128,917
|
|
|
Addition
|
|
|
992
|
|
|
|
-
|
|
|
|
275,410
|
|
|
|
276,402
|
|
|
December 31, 2017
|
|
$
|
119,903
|
|
|
$
|
10,006
|
|
|
$
|
275,410
|
|
|
$
|
405,319
|
|
As of December 31, 2016, construction
in progress of $3,660,000 was the payment for the construction of ground station equipment relating to satellite communication
system and in-flight system for the Company’s internal use. In 2017, one of the purchase contracts related to onboard equipment
became undeliverable. Therefore, the Company reclassified the relevant payment of $410,000 recorded under construction in progress
to other receivable. As a result, the balance of construction in progress was reduced to $3,250,000 as of December 31, 2017.
For the years ended December
31, 2017 and 2016, the changes in accumulated depreciation for property and equipment were as follows:
|
|
|
Computer
software
and
equipment
|
|
|
Furniture
and
fixture
|
|
|
Satellite
Equipment
|
|
|
Total
|
|
|
January 1, 2016
|
|
$
|
12,082
|
|
|
$
|
283
|
|
|
$
|
-
|
|
|
$
|
12,365
|
|
|
Addition
|
|
|
27,522
|
|
|
|
3,938
|
|
|
|
-
|
|
|
|
31,460
|
|
|
December 31, 2016
|
|
|
39,604
|
|
|
|
4,221
|
|
|
|
-
|
|
|
|
43,825
|
|
|
Addition
|
|
|
17,159
|
|
|
|
1,997
|
|
|
|
37,611
|
|
|
|
56,767
|
|
|
December 31, 2017
|
|
$
|
56,763
|
|
|
$
|
6,218
|
|
|
$
|
37,611
|
|
|
$
|
100,592
|
|
NOTE 6 - Intangible Asset, Net
For the years ended December
31, 2017 and 2016, the changes in cost and accumulated amortization for intangible asset were as follows:
|
|
|
Satellite
System software
|
|
|
Accumulated amortization
|
|
|
Net Cost
|
|
|
January 1, 2016
|
|
$
|
4,950,000
|
|
|
$
|
82,500
|
|
|
$
|
4,867,500
|
|
|
Addition
|
|
|
-
|
|
|
|
495,000
|
|
|
|
(495,000
|
)
|
|
December 31, 2016
|
|
|
4,950,000
|
|
|
|
577,500
|
|
|
|
4,372,500
|
|
|
Addition
|
|
|
-
|
|
|
|
495,000
|
|
|
|
(495,000
|
)
|
|
December 31, 2017
|
|
$
|
4,950,000
|
|
|
$
|
1,072,500
|
|
|
$
|
3,877,500
|
|
AERKOMM INC. AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
- Continued
Years Ended December 31, 2017, 2016 and
2015
NOTE 7 - Short-term Bank Loan
The Company has an unsecured
short-term bank credit line of $10,000, which will mature on June 14, 2018, from a local bank with an annual interest rate of
4.5% as of December 31, 2017.
NOTE 8 - Income Taxes
Income tax expense (benefit)
for the years ended December 31, 2017, 2016 and 2015 consisted of the following:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
3,033
|
|
|
$
|
(884,000
|
)
|
|
$
|
884,000
|
|
|
State
|
|
|
800
|
|
|
|
800
|
|
|
|
800
|
|
|
Foreign
|
|
|
4,686
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
8,519
|
|
|
$
|
(883,200
|
)
|
|
$
|
884,800
|
|
The following table presents
a reconciliation of the income tax at statutory tax rate and the Company’s income tax at effective tax rate for the years
ended December 31, 2017, 2016 and 2015.
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Tax expense (benefit) at statutory rate
|
|
$
|
(2,292,820
|
)
|
|
$
|
(1,158,300
|
)
|
|
$
|
987,000
|
|
|
Prepayment from related parties
|
|
|
-
|
|
|
|
(286,300
|
)
|
|
|
286,300
|
|
|
Net operating loss carryforwards (NOLs)
|
|
|
1,760,600
|
|
|
|
717,600
|
|
|
|
(345,000
|
)
|
|
Stock-based compensation expense
|
|
|
594,800
|
|
|
|
8,000
|
|
|
|
-
|
|
|
Amortization expense
|
|
|
(11,200
|
)
|
|
|
(168,300
|
)
|
|
|
(28,100
|
)
|
|
Others
|
|
|
(42,861
|
)
|
|
|
4,100
|
|
|
|
(15,400
|
)
|
|
Tax (benefit) at effective tax rate
|
|
$
|
8,519
|
|
|
$
|
(883,200
|
)
|
|
$
|
884,800
|
|
Deferred tax assets (liability)
as of December 31, 2017 and 2016 consist of:
|
|
|
2017
|
|
|
2016
|
|
|
Net operating loss carryforwards (NOLs)
|
|
$
|
2,057,000
|
|
|
$
|
519,000
|
|
|
Stock-based compensation expense
|
|
|
489,000
|
|
|
|
8,000
|
|
|
Accrued expenses and unpaid payable
|
|
|
443,000
|
|
|
|
35,000
|
|
|
Tax credit carryforwards
|
|
|
68,000
|
|
|
|
63,000
|
|
|
Excess of tax amortization over book amortization
|
|
|
(658,000
|
)
|
|
|
(230,000
|
)
|
|
|
|
|
2,399,000
|
|
|
|
395,000
|
|
|
Valuation allowance
|
|
|
(2,399,000
|
)
|
|
|
(395,000
|
)
|
|
Net
|
|
$
|
-
|
|
|
$
|
-
|
|
Management does not believe
the deferred tax assets will be utilized in the near future; therefore, a full valuation allowance is provided. The net change
in deferred tax assets valuation allowance was an increase of $2,004,000, $9,000 and $371,000 for the years ended December 31,
2017, 2016 and 2015, respectively. As a result of the Tax Cuts and Jobs Act signed into law in December 2017, the U.S. federal
corporate income tax rate is reduced to 21 percent, effective January 1, 2018. Consequently, the Company has recorded a decrease
related to its deferred tax assets of $48,000. Since the Company reserved full valuation allowance to its deferred tax assets,
there was no impact on income tax expense for the year ended December 31, 2017.
As of December 31, 2017, the
Company had federal NOLs and State NOLs of approximately $6,686,000 and $7,897,000, respectively, available to reduce future federal
and state taxable income, expiring in 2037.
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- Continued
Years Ended December 31, 2017, 2016 and
2015
NOTE 8 - Income Taxes - Continued
As of December 31, 2016, the
Company has Japan NOLs of approximately $326,000 available to reduce future Japan taxable income, expiring in 2019.
As of December 31, 2017, the
Company had approximately $37,000 of federal research and development tax credit, available to offset future federal income tax.
The credit begins to expire in 2034 if not utilized. As of December 31, 2017, the Company had approximately $39,000 of California
state research and development tax credit available to offset future California state income tax. The credit can be carried forward
indefinitely.
The Company’s ability
to utilize its federal and state NOLs to offset future income taxes is subject to restrictions resulting from its prior change
in ownership as defined by Internal Revenue Code Section 382. The Company does not expect to incur the limitation on NOLs utilization
in future annual usage.
NOTE 9 - Capital Stock
The Company is authorized to
issue 50,000,000 shares of preferred stock, with par value of $0.001. As of December 31, 2017, there were no preferred stock shares
outstanding.
The Board of Directors has the
authority to issue preferred stock in one or more series, and in connection with the creation of any such series, by resolutions
providing for the issuance of the shares thereof, to determine dividends, voting rights, conversion rights, redemption privileges
and liquidation preferences.
The Company is authorized to
issue 450,000,000 shares of common stock, with par value of $0.001.
Aircom had restricted stock
purchase agreement with certain employees or consultants with 2,890,000 shares granted on February 2, 2015. The restricted shares
were issued at fair values determined by the board of directors at the grant date. According to the agreement, in the event of
the voluntary termination of purchaser’s continuous service status, Aircom shall have the exclusive option to repurchase
all or any portion of the unvested shares held by purchaser at the original purchase price per share and the vested shares held
by purchaser at the fair market value per share as of the termination date. In February and June 2016, Aircom purchased back 133,333
unvested shares of restricted stock at $0.005 per share from terminated employees before the stock split. In June 2016, the restricted
stock was split to 27,566,670 shares. On February 13, 2017, all of Aircom’s 27,566,670 restricted shares were converted
to Aerkomm’s restricted stock of 10,279,738 shares at the ratio of 2.681651 to 1, pursuant to the Exchange Agreement (see
Note 1).
As of December 31, 2017 and
2016, the restricted shares (after share exchange) consisted of the following:
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Restricted stock - vested
|
|
|
10,238,300
|
|
|
|
7,787,490
|
|
|
Restricted stock - unvested
|
|
|
41,438
|
|
|
|
2,492,248
|
|
|
Total restricted stock
|
|
|
10,279,738
|
|
|
|
10,279,738
|
|
The unvested shares of restricted
stock were recorded under deposit liability account awaiting future conversion to common stock when they become vested.
On March 31, 2017, the Company
completed its private placement offering of 500,000 shares of common stock at a price of $3.00 per share for the aggregate amount
of $1,500,000.
On June 6, 2017, the Company
completed its private placement offering of 60,000 shares of common stock at a price of $5.00 per share for the aggregate amount
of $300,000. Additionally, on June 6, 2017, pursuant to a settlement and release agreement with Priceplay Taiwan Inc. (“PPTW”)
dated March 31, 2017, among the Company, PPTW and Aircom, the Company issued 163,860 shares of its common stock to PPTW in settlement
of an outstanding $819,300 obligation of Aircom to PPTW. Additionally, pursuant to a similar settlement and release agreement
with Priceplay.com, Inc. (“PPUS”) dated March 31, 2017, the Company issued 147,400 shares of its common stock to PPUS
in settlement of an outstanding $737,000 obligation of Aircom to PPUS, and pursuant to a third similar settlement and release
agreement with Aircom and dMobile System Co. ltd. (dMobile), it issued 94,220 shares of its common stock to dMobile in settlement
of an outstanding $471,100 obligation of Aircom to dMobile. In the aggregate, the Company has issued 405,480 shares to the three
settlement recipients at a price of $5.00 per share for a total of $2,027,400. Including the 60,000 shares sold to individuals
in the private offering, the Company issued 465,480 shares in total for an aggregate of $2,327,400.
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- Continued
Years Ended December 31, 2017, 2016 and
2015
NOTE 9 - Capital Stock - Continued
On July 5, 2017, the Company completed
its first closing of a private placement offering in which it sold 5,000 shares of its common stock to Daniel Shih, the Company’s
co-founder, at a price of $5.50 per share for a total of $27,500. The Company conducted additional closings in July and August
for a total of $517,413. As of October 31, 2017, the total subscribed capital amounted to $544,913. On October 31, 2017, the Company
completed this private placement offering of 264,086 shares of common stock at a price of $5.50 per share for the aggregate amount
of $1,452,473.
On November 27, 2017, the Company
completed its first closing of another private placement offering in which 13,400 shares of its common stock were subscribed by
Daniel Shih, the Company’s co-founder, at a price of $5.60 per share for a total of $75,040. The Company is offering a total
of 892,857 shares of its common stock at a price of $5.60 per share in this offering for the aggregate amount of $5,000,000 and
will pursue additional closings up to that aggregate amount through March 31, 2018.
On November 30, 2017, the Company
issued 80,000 and 20,000 shares of its common stock to Integra Consulting Group LLC (“Integra”) and Anthony D. Altavilla,
principal of Integra, respectively, according to the Consulting Agreement signed on November 15, 2017 between the Company and
Integra.
As of December 31, 2016, Aircom
had issued stock warrants exercisable for $60,000 in value of its common stock to a service provider as payment for services.
The stock warrants allow the service provider to purchase a number of shares of Aircom common stock equal $60,000 divided by 85%
of the share price paid by investors for Aircom’s common stock in the first subsequent qualifying equity financing event,
at an exercise price of $0.01 per share. On February 13, 2017, these stock warrants were converted to Aerkomm’s stock warrants
pursuant to the Exchange Agreement (see Note 1). For the year ended December 31, 2017, Aerkomm issued additional stock warrants
exercisable for $60,000 in value of Aerkomm common stock to the service provider as payment for additional services. As of December
31, 2017, the Company cumulatively recorded $120,000 as additional paid-in capital in total with respect to these warrants.
NOTE 10 - Related Party Transactions
|
A.
|
Name of related parties and relationships with the Company:
|
|
Related
Party
|
|
Relationship
|
|
Daniel Shih (Daniel)
*
|
|
Co-founder/promoter
and shareholder; Aircom’s CEO and Director between February 13, 2017 and April 26, 2017; Aircom’s CFO between
February 13, 2017 and May 5, 2017
|
|
Bummy Wu
|
|
Shareholder
|
|
Yih Lieh (Giretsu) Shih
|
|
President of Aircom
Japan
|
|
Hao Wei Peng
|
|
Employee of Aircom
Taiwan
|
|
dMobile System Co. Ltd. (dMobile)
|
|
Daniel is the Chairman
|
|
Klingon Aerospace, Inc. (Klingon)
|
|
Daniel was the Chairman
from February 2015 to February 2016
|
|
Law Office of Jan Yung Lin
|
|
100% owned by Jan
Yung Lin (Director)
|
|
Priceplay.com, Inc. (PPUS)
|
|
Daniel is the Chairman
|
|
Priceplay Taiwan Inc. (PPTW)
|
|
Parent of PPUS
|
|
Wealth Wide Int’l Ltd. (WWI)
|
|
Bummy Wu is the
Chairman
|
|
Yun Shu Chiou
|
|
Former CEO and President
|
* Daniel has relinquished “beneficial
ownership” of substantially all of his equity interests in the Company (whether held directly or indirectly) in a manner
acceptable to the Company. This means that Daniel no longer, directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise has or shares (i) voting power, which includes the power to vote, or to direct the voting of, securities,
and/or (ii) investment power, which includes the power to dispose, or to direct the disposition of, shares of our common stock,
except for a de minimus number of shares of the common stock which will continue to be beneficially owned by him by way of his
being a control person in another entity that owns shares of the common stock. Daniel will, however, retain a pecuniary interest
in some of the shares of the common stock over which he has relinquished voting and investment power. Daniel has also removed
himself from any and all activities relating to the Company’s business, including, but not limited to managerial, directional,
advisory, promotional, developmental and fund-raising activities, effective upon the effectiveness of the registration statement
on Form S-1 filed with the SEC on December 20, 2017, as amended to date. Additionally, Barbie Shih (Barbie), Daniel’s wife,
was not re-elected to our board of directors on December 29, 2017. As a result of these events, neither Daniel nor Barbie will
maintain any active affiliation with, or material beneficial ownership interest in, the Company.
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- Continued
Years Ended December 31, 2017, 2016 and
2015
NOTE 10 – Related Party Transactions
- Continued
|
B.
|
Significant
related party transactions:
|
The
Company has extensive transactions with its related parties. It is possible that the terms of these transactions are not the same
as those which would result from transactions among wholly unrelated parties.
|
a.
|
As of December 31, 2017 and 2016,
|
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Other receivable from Hao Wei Peng
1
|
|
$
|
46,743
|
|
|
$
|
-
|
|
|
Rental deposit to Daniel
|
|
$
|
2,396
|
|
|
$
|
4,966
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Klingon
2
|
|
|
762,000
|
|
|
|
762,000
|
|
|
Daniel
3
|
|
|
128,543
|
|
|
|
49,500
|
|
|
Yih Lieh (Giretsu) Shih
3
|
|
|
76,600
|
|
|
|
69,385
|
|
|
WWI
4
|
|
|
9,410
|
|
|
|
-
|
|
|
PPTW
|
|
|
-
|
|
|
|
819,300
|
|
|
PPUS
|
|
|
-
|
|
|
|
737,000
|
|
|
dMobile
|
|
|
-
|
|
|
|
471,100
|
|
|
Bummy Wu
|
|
|
-
|
|
|
|
32,149
|
|
|
Others
3
|
|
|
105,842
|
|
|
|
15,141
|
|
|
Total
|
|
$
|
1,082,395
|
|
|
$
|
2,955,575
|
|
|
1.
|
Represents receivable from
Mr. Peng due to the transactions prior to the acquisition of Aircom Telecom on December
19, 2017. The amount is subsequently collected on January 4, 2018.
|
|
2.
|
On March 9, 2015, the Company
entered into a 10-year purchase agreement with Klingon. In accordance with the terms
of this agreement, Klingon agreed to purchase from the Company an initial order of onboard
equipment comprising an onboard system for a purchase price of $909,000, with payments
to be made in accordance with a specific milestones schedule. As of December 31, 2017
and 2016, the Company received $762,000 from Klingon in milestone payments towards the
equipment purchase price. Since the project might not be successful, the Company reclassified
the balance from customer prepayment to other payable due to uncertainty.
|
|
3.
|
Represents payable to employees
as a result of regular operating activities.
|
|
4.
|
Represents rent for a warehouse
in Hong Kong to store the Company’s hardware.
|
|
b.
|
For the years ended December 31, 2017, 2016 and 2015,
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Sales to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dMobile
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,478,900
|
|
|
PPUS
|
|
|
-
|
|
|
|
-
|
|
|
|
650,000
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,128,900
|
|
100% of the Company’s
sales for the year ended December 31, 2015 were to related parties.
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- Continued
Years Ended December 31, 2017, 2016 and
2015
NOTE 10 - Related Party Transactions
- Continued
|
|
|
Year Ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Intangible purchase from dMobile
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,950,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal expense paid to Law Office
of Jan Yung Lin
|
|
$
|
-
|
|
|
$
|
10,000
|
|
|
$
|
51,431
|
|
|
Consulting expense paid to Yun
Shu Chiou
|
|
$
|
55,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Rental expense charged by Daniel
|
|
$
|
20,232
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Rental expense charged by WWI
|
|
$
|
3,150
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Aircom Japan entered into a
lease agreement with Daniel, between August 1, 2014 and July 31, 2016, which was renewed to expire on July 31, 2018. Pursuant
to the terms of this lease agreement, Aircom Japan pays Daniel a rental fee of approximately $1,200 per month.
The Company has a lease agreement
with WWI with monthly rental cost of $450. The lease term is from June 1, 2017 to May 31, 2018.
NOTE 11 - Stock Based Compensation
In March 2014, Aircom’s
Board of Directors adopted the 2014 Stock Option Plan (the “Aircom 2014 Plan”). The Aircom 2014 Plan provides for
the granting of incentive stock options and non-statutory stock options to employees, consultants and outside directors of Aircom.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator
at the time of grant of an Option. On February 13, 2017, pursuant to the Exchange Agreement, Aerkomm assumed the options of Aircom
2014 Plan and agreed to issue options for an aggregate of 5,444,407 shares to Aircom’s stock option holders.
One-third of Aircom 2014 Plan
stock option shares will be vested as of the first anniversary of the time the option shares are granted or the employee’s
acceptance to serve the Company, and 1/36th of the shares will be vested each month thereafter. Option price is determined by
the Board of Directors. The Plan shall become effective upon its adoption by the Board and shall continue in effect for a term
of 10 years unless sooner terminated under the terms of Aircom 2014 Plan.
On May 5, 2017, the Board of
Directors of Aerkomm adopted the Aerkomm Inc. 2017 Equity Incentive Plan (the “Aerkomm 2017 Plan” or, the “Plan”)
and the reservation of 5,000,000 shares of the Company’s common stock for issuance under the Plan. On June 23, 2017, the
Board of Directors voted to increase the number of shares of the Company’s common stock reserved for issuance under the
Plan to 10,000,000 shares. The Aerkomm 2017 Plan provides for the granting of incentive stock options and non-statutory stock
options to employees, consultants and outside directors of Aircom. Options granted under the Plan may be Incentive Stock Options
or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an option. On June 23, 2017, the Board
of Directors agreed to issue options for an aggregate of 1,455,000 shares under the Aerkomm 2017 Plan to certain officers and
directors of Aerkomm.
The option agreements granted
on June 23, 2017 are classified into three types of vesting schedule, which includes, 1) 1/6 of the shares subject to the option
shall vest commencing on the vesting start date and the remaining shares shall vest at the rate of 1/60 for the next 60 months
on the same day of the month as the vesting start date; 2) 1/4 of the shares subject to the option shall vest commencing on the
vesting start date and the remaining shares shall vest at the rate of 1/36 for the next 36 months on the same day of the month
as the vesting start date; 3) 1/3 of the shares subject to the option shall vest commencing on the first anniversary of vesting
start date and the remaining shares shall vest at the rate of 50% each year for the next two years on the same day of the month
as the vesting start date.
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- Continued
Years Ended December 31, 2017, 2016 and
2015
NOTE 11 - Stock Based Compensation
- Continued
Option price is determined by
the Board of Directors. The Plan has been adopted by the Board and shall continue in effect for a term of 10 years unless sooner
terminated under the terms of Aerkomm 2017 Plan. The Plan has not yet been approved by Aerkomm’s stockholders.
Valuation and Expense Information
Measurement and recognition
of compensation expense based on estimated fair values is required for all share-based payment awards made to its employees and
directors including employee stock options. The Company recognized compensation expense of $1,749,447, $20,000 and $0 for the
years ended December 31, 2017, 2016 and 2015, respectively, related to such employee stock options.
|
|
Determining Fair Value
|
|
|
|
|
|
Valuation and amortization method
|
|
|
|
|
|
The Company uses the Black-Scholes option-pricing-model to estimate
the fair value of stock options granted on the date of grant or modification and amortizes the fair value of stock-based compensation
at the date of grant on a straight-line basis for recognizing stock compensation expense over the vesting period of the option.
|
|
|
|
|
|
Expected term
|
|
|
|
|
|
The expected term is the period of time that granted options
are expected to be outstanding. The Company uses the SEC’s simplified method for determining the option expected term
based on the Company’s historical data to estimate employee termination and options exercised.
|
|
|
|
|
|
Expected dividends
|
|
|
|
|
|
The Company does not plan to pay cash dividends before the options
are expired. Therefore, the expected dividend yield used in the Black-Scholes option valuation model is zero.
|
|
|
|
|
|
Expected volatility
|
|
|
|
|
|
Since the Company has no historical volatility, it used the
calculated value method which substitutes the historical volatility of a public company in the same industry to estimate the
expected volatility of the Company’s share price to measure the fair value of options granted under Aircom 2014 Plan
and Aerkomm 2017 Plan.
|
|
|
|
|
|
Risk-free interest rate
|
|
|
|
|
|
The Company based the risk-free interest rate used in the Black-Scholes
option valuation model on the market yield in effect at the time of option grant provided in the Federal Reserve Board’s
Statistical Releases and historical publications on the Treasury constant maturities rates for the equivalent remaining terms
for Aircom 2014 Plan and Aerkomm 2017 Plan.
|
|
|
|
|
|
Forfeitures
|
|
|
|
|
|
The Company is required to estimate forfeitures at the time
of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company
uses historical data to estimate option forfeitures and records share-based compensation expense only for those awards that
are expected to vest.
|
The Company used the following
assumptions to estimate the fair value of options granted in 2017 and 2016 under Aircom 2014 Plan and Aerkomm 2017 Plan as follows:
|
Assumptions
|
|
|
|
Expected term
|
|
3 - 5 years
|
|
Expected volatility
|
|
40.11% - 59.18%
|
|
Expected dividends
|
|
0%
|
|
Risk-free interest rate
|
|
0.71 – 2.40%
|
|
Forfeiture rate
|
|
0% - 5%
|
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- Continued
Years Ended December 31, 2017, 2016 and
2015
NOTE 11 - Stock Based Compensation - Continued
Aircom 2014 Plan
A summary of the number of shares,
weighted average exercise price and estimated fair value of options for Aircom 2014 Plan as of December 31, 2017 and 2016 was
as follows:
|
|
|
Number
of
shares
|
|
|
Weighted Average Exercise
Price Per Share
|
|
|
Weighted Average Fair Value
Per Share
|
|
|
Options outstanding at January 1, 2016
|
|
|
4,139,241
|
|
|
$
|
0.0013
|
|
|
$
|
0.0004
|
|
|
Granted
|
|
|
1,305,166
|
|
|
|
0.6704
|
|
|
|
0.2108
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Options outstanding at December 31, 2016
|
|
|
5,444,407
|
|
|
|
0.1617
|
|
|
|
0.0508
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
(19,681
|
)
|
|
|
0.0013
|
|
|
|
0.0004
|
|
|
Forfeited/Cancelled
|
|
|
(763,418
|
)
|
|
|
0.6550
|
|
|
|
0.2059
|
|
|
Options outstanding at December 31, 2017
|
|
|
4,661,307
|
|
|
|
0.0816
|
|
|
|
0.0256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2016
|
|
|
2,066,858
|
|
|
|
0.0013
|
|
|
|
0.0004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2017
|
|
|
3,148,972
|
|
|
|
0.0412
|
|
|
|
0.0129
|
|
A summary of the status of nonvested
shares under Aircom 2014 Plan as of December 31, 2017 and 2016 was as follows:
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise Price
Per
Share
|
|
|
Options nonvested at January 1, 2016
|
|
|
4,139,241
|
|
|
$
|
0.0013
|
|
|
Granted
|
|
|
1,305,166
|
|
|
|
0.6704
|
|
|
Vested
|
|
|
(2,066,858
|
)
|
|
|
0.0013
|
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
Options nonvested at December 31, 2016
|
|
|
3,377,549
|
|
|
|
0.2597
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
(1,101,795
|
)
|
|
|
0.1146
|
|
|
Forfeited/Cancelled
|
|
|
(763,418
|
)
|
|
|
0.6550
|
|
|
Options nonvested at December 31, 2017
|
|
|
1,512,335
|
|
|
|
0.1663
|
|
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- Continued
Years Ended December 31, 2017, 2016 and
2015
NOTE 11 - Stock Based Compensation - Continued
Aerkomm 2017 Plan
A summary of the number of shares,
weighted average exercise price and estimated fair value of options under Aerkomm 2017 Plan as of December 31, 2017 was as follows:
|
|
|
Number
of
Shares
|
|
|
Weighted Average Exercise
Price Per Share
|
|
|
Weighted
Average
Fair
Value
Per
Share
|
|
|
Options outstanding at January 1, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
2,060,000
|
|
|
|
5.9154
|
|
|
|
3.5401
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Cancelled
|
|
|
(795,000
|
)
|
|
|
5.5000
|
|
|
|
3.2922
|
|
|
Options outstanding at December 31, 2017
|
|
|
1,265,000
|
|
|
|
6.1765
|
|
|
|
3.6959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2017
|
|
|
423,750
|
|
|
|
5.5708
|
|
|
|
3.4005
|
|
A summary of the status of nonvested
shares under Aerkomm 2017 Plan as of December 31, 2017 was as follows:
|
|
|
Number of Shares
|
|
|
Weighted
Average
Exercise
Price Per Share
|
|
|
Options nonvested at January 1, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
2,060,000
|
|
|
|
5.9154
|
|
|
Vested
|
|
|
(423,750
|
)
|
|
|
5.5708
|
|
|
Forfeited/Cancelled
|
|
|
(795,000
|
)
|
|
|
5.5000
|
|
|
Options nonvested at December 31, 2017
|
|
|
841,250
|
|
|
|
6.4816
|
|
As of December 31, 2017, 2016
and 2015, there were approximately $5,057,000, $94,000 and $2,000, respectively, of total unrecognized compensation cost related
to nonvested share-based compensation arrangements granted under Aircom 2014 Plan and Aerkomm 2017 Plan. Total unrecognized compensation
cost will be adjusted for future changes in estimated forfeitures. The Company expects to recognize that cost over a weighted
average period of 1 - 5 years.
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- Continued
Years Ended December 31, 2017, 2016 and
2015
NOTE 12 - Commitments and Contingency
|
As of December 31, 2017, the Company’s significant commitments
with non-related parties and contingency are summarized as follows:
|
|
|
|
Commitments
|
|
1)
|
The Company’s
lease for its office in Fremont, California expired in May 2017, it was renewed and to expire in May 2020. Rental expense
was $71,152, $62,472 and $39,045 for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017,
future minimum lease payment obligation is approximately $77,000, $77,000 and $32,000 for 2018, 2019 and 2020, respectively.
|
|
|
|
|
2)
|
The Company has
another lease for its Japan office expiring July 2018. Rental expense was approximately $55,043 for the year ended December
31, 2017. As of December 31, 2017, future minimum lease payment obligation is $18,700, including the 8% Japan consumption
tax, for 2018 until its expiration.
|
|
|
|
|
3)
|
The Company assumed a lease for its Taiwan office expiring October
31, 2018 as a result of the acquisition of Aircom Taiwan. Monthly rental expense is NT$236,250
(approximately $8,000). As of December 31, 2017, future minimum lease payment obligation is
NT$2,362,500 (approximately $80,000) for 2018 until its expiration.
|
|
|
|
|
4)
|
In March 2017, the
Company entered into a satellites service agreement (the Agreement) with a Japanese company (Company J). The agreement is
effective on March 15, 2017 and will expire three years from the effective date. According to the Agreement, the Company shall
prepay the total amount of $285,300 and the deposit of $95,100 on April 15, 2017. The prepayment of $285,300 shall be applied
to monthly service charge by Company J based on the terms defined in the Agreement.
|
|
|
|
|
Contingency
|
|
|
|
The
Company entered into a 3-year digital transmission service agreement with Asia Satellite Telecommunication Company Limited
(“Asia Sat”) on July 25, 2015. As of March 31, 2017, Asia Sat stipulates that the Company is in debt of $8,013,495
to Asia Sat, which includes unpaid service fees, a default payment in the form of liquidated sum and interest. The default
payment includes total future payments of $7,411,616 due through March 31, 2018, subtracting the deposit of $775,000 made
to Asia Sat. The Company disagreed with the payable balance of $8,013,495 and had recorded $1,376,879 payable to Asia Sat
as of March 31, 2017. On July 25, 2016, Asia Sat commenced arbitration against the Company. On November 21, 2016, the Hong
Kong International Arbitration Centre (“HKIAC”) appointed a sole arbitrator to hear the dispute. On January 12,
2017, the Company introduced a counterclaim for misrepresentations made to induce entry into the Agreement. Aircom and AsiaSat
reached a settlement with respect to the Agreement as of July 25, 2017, with an effective date of July 20, 2017. As of December
31, 2017, the Company has accrued the settlement liability and accounted for the net impact of the settlement.
|
AERKOMM
INC.
UP
TO $60,000,000
of
SHARES
OF COMMON STOCK
PROSPECTUS
April 6, 2018
Until
, 2018, all dealers that effect transactions in these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus
when acting as underwriter and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM
13. Other Expenses of Issuance and Distribution
The
following table sets forth all expenses to be paid by the Registrant, other than underwriting discounts and commissions, in connection
with this offering. All amounts shown are estimates except for the SEC registration fee and the FINRA filing fee.
SEC registration fee
|
|
$
|
9,148.90
|
|
Accounting fees and expenses
|
|
|
65,000.00
|
|
Legal fees and expenses
|
|
|
135,000.00
|
|
FINRA Filing Fee
|
|
|
11,522.75
|
|
Transfer agent fees and expenses
|
|
|
10,000.00
|
|
Printing and related fees
|
|
|
5,000.00
|
|
Miscellaneous
|
|
|
125,000.00
|
|
Total
|
|
$
|
360,671.65
|
|
ITEM
14. Indemnification of Directors and Officers
We
are a Nevada Corporation. The Nevada Revised Statutes and certain provisions of our Amended and Restated Bylaws under certain
circumstances provide for indemnification of our officers, directors and controlling persons against liabilities which they may
incur in such capacities. A summary of the circumstances in which such indemnification is provided for is contained herein, but
this description is qualified in its entirety by reference to our Amended and Restated Bylaws and to the statutory provisions.
In
general, any officer, director, employee or agent may be indemnified against expenses, fines, settlements or judgments arising
in connection with a legal proceeding to which such person is a party, if that person’s actions were in good faith, were
believed to be in our best interest, and were not unlawful. Unless such person is successful upon the merits in such an action,
indemnification may be awarded only after a determination by independent decision of our board of directors, by legal counsel,
or by a vote of our stockholders, that the applicable standard of conduct was met by the person to be indemnified.
The
circumstances under which indemnification is granted in connection with an action brought on our behalf is generally the same
as those set forth above; however, with respect to such actions, indemnification is granted only with respect to expenses actually
incurred in connection with the defense or settlement of the action. In such actions, the person to be indemnified must have acted
in good faith and in a manner believed to have been in our best interest, and have not been adjudged liable for negligence or
misconduct.
Indemnification
may also be granted pursuant to the terms of agreements which may be entered in the future or pursuant to a vote of stockholders
or directors. The Nevada Revised Statutes also grant us the power to purchase and maintain insurance which protects our officers
and directors against any liabilities incurred in connection with their service in such a position, and such a policy may be obtained
by us.
We
have not entered into separate indemnification agreements with our directors and executive officers.
A
stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against
directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding
involving any of our directors, officers or employees regarding which indemnification by us is sought, nor are we aware of any
threatened litigation that may result in claims for indemnification.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling
us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
ITEM
15. Recent Sales of Unregistered Securities
On
March 31, 2017, we completed a private placement offering of 500,000 shares of our common stock, $0.001 par value per share, at
a price per share of $3.00, to certain individuals for an aggregate of $1,500,000.
On
June 6, 2017, we completed a private placement offering of 60,000 shares of our common stock, $0.001 par value per share, at a
price per share of $5.00, to certain individuals for an aggregate of $300,000. Additionally, pursuant to the terms of our settlement
and release agreements with dMobile, PPUS and PPTW, we issued 94,220 shares of our common stock to dMobile, 147,000 shares to
PPUS and 163,860 shares to PPTW as part of this private placement. We issued these shares in the private placement offering at
the private placement offering price of $5.00 per share, for an aggregate of 405,480 shares and a total value of $2,027,400. Including
the 60,000 Shares sold to individuals in this offering and the shares issued under the three settlement and release agreements,
we sold, in total, 465,480 shares in this offering for an aggregate value of $2,327,400.
On
October 31, 2017, the Company completed its private placement offering of 264,086 shares of common stock at a price of $5.50 per
share for the aggregate amount of $1,452,473.
On
November 27, 2017, the Company completed its first closing of a private placement offering in which it sold 13,400 shares of its
common stock to Daniel Shih, the Company’s co-founder, at a price of $5.60 per share for a total of $75,040. The Company
is offering a total of 892,857 shares of its common stock at a price of $5.60 per share in this offering for the aggregate amount
of $5,000,000 and may conduct additional closings up to that aggregate amount through March 31, 2018.
The
sales of the shares in these offerings were exempt from the registration requirements of the Securities Act of 1933 by virtue
of Section 4(a)(2) thereof and Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering.
The purchasers of the securities in these offerings represented their intention to acquire the securities for investment only
and not with a view to or for sale in connection with any distribution thereof, and appropriate restrictive legends were affixed
to the certificates evidencing the shares issued in these offerings. All purchasers of the securities represented and warranted,
among other things, that they were “accredited investors” within the meaning of Rule 501 of Regulation D, that they
had the knowledge and experience in financial and business matters necessary to evaluate the merits and risks of an investment
in the Company, that they had the ability to bear the economic risks of the investment, and that they had adequate access to information
about the Company.
ITEM
16. Exhibits and Financial Statement Schedules
(a)
Exhibits
. We have filed the exhibits listed on the accompanying Exhibit Index of this Registration Statement.
(b)
Financial Statement Schedules
. All financial statement schedules are omitted because the information called for is not
required or is shown either in the consolidated financial statements or in the notes thereto.
ITEM
17. Undertakings
The
undersigned registrant hereby undertakes to:
(1)
File, during any period in which offers or sells are being made, a post-effective amendment to this registration statement:
(i)
To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii)
To include material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
provided, however,
that paragraphs (1)(i), (1)(ii)
and (1)(iii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is
contained in reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 and Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.
(2)
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4)
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule
430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement
or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document immediately prior to such date of first use.
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Fremont, State of California, on April 6, 2018.
|
AERKOMM
INC.
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By:
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/s/
Jeffrey Wun
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Jeffrey
Wun
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President
and Chief Executive Officer
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By:
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/s/
Y. Tristan Kuo
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Y.
Tristan Kuo
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Chief
Financial Officer and Treasurer
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Pursuant to the
requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities
and on April 6, 2018.
Signature
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Title
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|
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/s/
Jeffrey Wun
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Chief
Executive Officer (Principal Executive Officer),
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Jeffrey
Wun
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President
and Chairman of the Board
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/s/
Y. Tristan Kuo
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Chief
Financial Officer
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Y.
Tristan Kuo
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(Principal
Financial and Accounting Officer) and Treasurer
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/s/
Y. Tristan Kuo*
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Director
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Raymond
Choy
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/s/
Y. Tristan Kuo*
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Secretary
and Director
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Jan-Yung
Lin
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/s/
Y. Tristan Kuo*
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Director
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Colin
Lim
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/s/
Y. Tristan Kuo*
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Director
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Chih-Ming
(Albert) Hsu
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/s/
Y. Tristan Kuo*
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Director
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James
J. Busuttil
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*
Attorney-in-fact
EXHIBIT
INDEX
Exhibit
Number
|
|
Description
|
1.1
|
|
Underwriting
Agreement between the Registrant and Boustead Securities, LLC (revised) (22)
|
2.1
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Form
of Share Exchange Agreement, dated February 13, 2017, among the Registrant, Aircom Pacific, Inc. and the shareholders of Aircom
Pacific, Inc. (1)
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3.1
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Restated
Articles of Incorporation of the Registrant (2)
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3.2
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Bylaws of the Registrant (3
)
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4.1
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Form
of Underwriter Warrant (20)
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5.1
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Legal
Opinion of Nevada Legal Counsel (20)
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10.1
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Stock
Purchase Agreement, dated as of December 28, 2016, by and among Irina Goldman, Aircom Pacific, Inc. and the Company (4)
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10.2
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Stock
Purchase Agreement, dated May 15, 2015, Chi Kong Wu and Aircom Pacific, Ltd. (5)
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10.3
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Digital
Transmission Service Agreement, dated July 25, 2015, between Asia Satellite Telecommunications Company Limited and Aircom
Pacific, Inc. (6)
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10.4
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Statement
of Work, dated January 15, 2015, between Aircom Pacific, Inc. and dMobile System Co. Ltd. (7)
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10.5
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Development
Agreement, dated February 10, 2015, between Aircom Pacific, Inc. and Priceplay.com, Inc. (8)
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10.6
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First
Amendment to Development Agreement, dated July 17, 2015, between Aircom Pacific, Inc. and Priceplay.com, Inc. (9)
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10.7
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Second
Amendment to Development Agreement, dated August 18, 2015, between Aircom Pacific, Inc. and Priceplay.com, Inc. (10)
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10.8
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Purchase
Agreement for Ground Station Equipment, dated as of October 15, 2014, between dMobile System Co., Ltd. and Aircom Pacific,
Inc. (11)
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10.9
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Purchase
Agreement for Ground Station Equipment, dated as of December 15, 2015, between Blue Topaz Consultants, Ltd. and Aircom Pacific,
Inc. (12)
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10.10
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Purchase
Agreement for Aircom Onboard Equipment, dated as of March 9, 2015, between LUXE Electric Co., Ltd. and Aircom Pacific, Inc.
(13)
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10.11
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Standard
Industrial/Commercial Multi-Tenant Lease, dated April 26, 2016, between Global Venture Development, LLC and Aircom Pacific,
Inc. (14)
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10.12++
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Employment
Agreement dated March 31, 2017, between the Registrant and YuYun Tristan Kuo.(15)
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10.13
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Settlement
Agreement and Mutual Release dated March 31, 2017 by and Among the Registrant, Aircom Pacific, Inc. and dMobile System Co.
Ltd. (16)
|
10.14
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|
Settlement
Agreement and Mutual Release dated March 31, 2017 by and Among the Registrant, Aircom Pacific, Inc. and Priceplay.com, Inc.
(16)
|
10.15
|
|
Settlement
Agreement and Mutual Release dated March 31, 2017 by and Among the Registrant, Aircom Pacific, Inc. and Priceplay Taiwan Inc.
(16)
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10.16
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|
Agreement
for the Purchase and Sale of Shares dated December 12, 2016 by and between Capricorn Union Limited and Aircom Pacific, Inc.
(17)
|
10.17
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|
Consulting
Agreement with Integra Consulting Group, LLC dated November 15, 2017, as supplemented. (19)
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10.18
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Form
of Common Stock Subscription Agreement for the November 2017 Private Placement (18)
|
10.19
|
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SKY
Perfect JSAT Master Service Agreement dated March 15, 2017 (20)
|
10.20
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Form
of Independent Director Agreement (20)
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10.21
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Form
of Public Offering Subscription Agreement (22)
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10.22
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Form
of Underwriter Lockup Agreement (22)
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21.1
|
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List
of Subsidiaries
(21)
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23.1**
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Consent of Independent Registered Pubic Accounting Firm
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23.2
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Consent
of Nevada Legal Counsel (see Exhibit 5.1 above) (20)
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24.1
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Power
of Attorney (see signature page above)
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99.1
++
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2017
Equity Compensation Plan, as amended (16)
|
**
|
Filed
herewith.
|
++
|
Indicates
management contract or compensatory plan.
|
|
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(1)
|
Incorporated
by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2017.
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(2)
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Incorporated
by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 4, 2017.
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(3)
|
Incorporated
by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form
S-1 filed with the SEC on November 5, 2013
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(4)
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 29, 2016.
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(5)
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Incorporated by
reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2017.
|
(6)
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Incorporated by
reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2017.
|
(7)
|
Incorporated by
reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2017.
|
(8)
|
Incorporated by
reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2017.
|
(9)
|
Incorporated by
reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2017.
|
(10)
|
Incorporated by
reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2017.
|
(11)
|
Incorporated by
reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2017.
|
(12)
|
Incorporated by
reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2017.
|
(13)
|
Incorporated by
reference to Exhibit 10.10 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2017.
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(14)
|
Incorporated by
reference to Exhibit 10.11 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2017.
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(15)
|
Incorporated by
reference to Exhibit 10.12 to the Registrant’s Current Report on Form 8-K filed with the SEC on April 5, 2017.
|
(16)
|
Incorporated by
reference to Exhibit as numbered above, to the Registrant’s Registration Statement on Form S-1 filed with the SEC on
June 27, 2017.
|
(17)
|
Incorporated by
reference to Exhibit 10.16, to the Registrant’s Registration Statement on Form S-1, Amendment No. 1, filed with the
SEC on August 29, 2017.
|
(18)
|
Incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 27, 2017.
|
(19)
|
Incorporated by
reference to Exhibit 10-17 to the Registrant’s Registration Statement on Form S-1 filed with the SEC on December 20,
2017.
|
(20)
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Incorporated by reference to the indicated Exhibit in the Registrant’s Registration
Statement on Form S-1, Amendment No. 1 filed with the SEC on February 2, 2018.
|
(21)
|
Incorporated
by reference to the indicated Exhibit in the Registrant’s Registration Statement on Form S-1, Amendment No. 2 filed
with the SEC on February 12, 2018.
|
(22)
|
Incorporated
by reference to the indicated Exhibit in the Registrant’s Registration Statement on Form S-1, Amendment No. 3 filed
with the SEC on March 30, 2018
|
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